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Pre-trade benchmarks

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Definition of Pre-trade benchmarks

Pre-trade Benchmarks Image 1

Pre-trade benchmarks

Prices occurring before or at the decision to trade.



Related Terms:

Accelerated depreciation

Any depreciation method that produces larger deductions for depreciation in the
early years of a project's life. Accelerated cost recovery system (ACRS), which is a depreciation schedule
allowed for tax purposes, is one such example.


accelerated depreciation

(1) The estimated useful life of the fixed asset being depreciated is
shorter than a realistic forecast of its probable actual service life;
(2) more of the total cost of the fixed asset is allocated to the first
half of its useful life than to the second half (i.e., there is a
front-end loading of depreciation expense).


Accelerated depreciation

Any of several methods that recognize an increased amount
of depreciation in the earliest years of asset usage. This results in increased tax benefits
in the first few years of asset usage.


Accumulated depreciation

A contra-fixed asset account representing the portion of the cost of a fixed asset that has been previously charged to expense. Each fixed asset account will have its own associated accumulated depreciation account.


accumulated depreciation

A contra, or offset, account that is coupled
with the property, plant, and equipment asset account in which the original
costs of the long-term operating assets of a business are recorded.
The accumulated depreciation contra account accumulates the amount of
depreciation expense that is recorded period by period. So the balance in
this account is the cumulative amount of depreciation that has been
recorded since the assets were acquired. The balance in the accumulated
depreciation account is deducted from the original cost of the assets
recorded in the property, plant, and equipment asset account. The
remainder, called the book value of the assets, is the amount included on
the asset side of a business.



Accumulated depreciation

The sum total of all deprecation expense recognized to date
on a depreciable fixed asset.


Accumulated Other Comprehensive Income

Cumulative gains or losses reported in shareholders'
equity that arise from changes in the fair value of available-for-sale securities, from the
effects of changes in foreign-currency exchange rates on consolidated foreign-currency financial
statements, certain gains and losses on financial derivatives, and from adjustments for underfunded
pension plans.


Pre-trade Benchmarks Image 2

Adjustable rate preferred stock (ARPS)

Publicly traded issues that may be collateralized by mortgages and MBSs.


Adjusted present value (APV)

The net present value analysis of an asset if financed solely by equity
(present value of un-levered cash flows), plus the present value of any financing decisions (levered cash
flows). In other words, the various tax shields provided by the deductibility of interest and the benefits of
other investment tax credits are calculated separately. This analysis is often used for highly leveraged
transactions such as a leverage buy-out.


Annual Premium

Yearly amount payable by a client for a policy or component.


Appreciation

An increase in the perceived or actual value of an asset.


Appreciation

Increase in the value of a currency.


Auction rate preferred stock (ARPS)

Floating rate preferred stock, the dividend on which is adjusted every
seven weeks through a Dutch auction.


Automatic Waiver of Premium

A benefit that automatically forfeits premium payments.


Balance of Merchandise Trade

The difference between exports and imports of goods.


Balance of trade

Net flow of goods (exports minus imports) between countries.


Balance of Trade

See balance of merchandise trade.


Basket trades

Related: Program trades.



Block trade

A large trading order, defined on the New York Stock Exchange as an order that consists of
10,000 shares of a given stock or a total market value of $200,000 or more.


Bull spread

A spread strategy in which an investor buys an out-of-the-money put option, financing it by
selling an out-of-the money call option on the same underlying.


Committee, AIMR Performance Presentation Standards Implementation Committee

The Association for Investment Management and Research (AIMR)'s Performance presentation Standards Implementation
Committee is charged with the responsibility to interpret, revise and update the AIMR Performance
presentation Standards (AIMR-PPS(TM)) for portfolio performance presentations.


Comprehensive due diligence investigation

The investigation of a firm's business in conjunction with a
securities offering to determine whether the firm's business and financial situation and its prospects are
adequately disclosed in the prospectus for the offering.


control premium

the additional value inherent in the control interest as contrasted to a minority interest, which reflects its power of control


Conversion premium

The percentage by which the conversion price in a convertible security exceeds the
prevailing common stock price at the time the convertible security is issued.


Convertible exchangeable preferred stock

Convertible preferred stock that may be exchanged, at the
issuer's option, into convertible bonds that have the same conversion features as the convertible preferred
stock.


Convertible preferred stock

preferred stock that can be converted into common stock at the option of the holder.


Cost of Preferred Stock

The rate of return required by the investors in the preferred stock of
a company. A component of the cost of capital.


cost presentation

the approach to product costing that determines
how costs are shown on external financial statements
or internal management reports



Counter trade

The exchange of goods for other goods rather than for cash; barter.


Credit spread

Related:Quality spread


Cumulative preferred stock

preferred stock whose dividends accrue, should the issuer not make timely
dividend payments. Related: non-cumulative preferred stock.


Customized benchmarks

A benchmark that is designed to meet a client's requirements and long-term
objectives.


Default premium

A differential in promised yield that compensates the investor for the risk inherent in
purchasing a corporate bond that entails some risk of default.


default premium

Difference in promised yields between a default-free bond and a riskier bond.


Depreciate

To allocate the purchase cost of an asset over its life.


Depreciation

A non-cash expense that provides a source of free cash flow. Amount allocated during the
period to amortize the cost of acquiring Long term assets over the useful life of the assets.


Depreciation

A technique by which a company recovers the high cost of its plant-and-equipment assets gradually during the number of years they’ll be used in the business. Depreciation can be physical, technological, or both.


Depreciation

An expense that spreads the cost of an asset over its useful life.


depreciation

Refers to the generally accepted accounting principle of allocating
the cost of a long-term operating asset over the estimated useful
life of the asset. Each year of use is allocated a part of the original cost of
the asset. Generally speaking, either the accelerated method or the
straight-line method of depreciation is used. (There are other methods,
but they are relatively rare.) Useful life estimates are heavily influenced
by the schedules allowed in the federal income tax law. Depreciation is
not a cash outlay in the period in which the expense is recorded—just
the opposite. The cash inflow from sales revenue during the period
includes an amount to reimburse the business for the use of its fixed
assets. In this respect, depreciation is a source of cash. So depreciation is
added back to net income in the statement of cash flows to arrive at cash
flow from operating activities.


Depreciation

Reduction in value of fixed or tangible assets over some period
for accounting purposes. See Amortization.


Depreciation

Both the decline in value of an asset over time, as well as the gradual
expensing of an asset over time, roughly in accordance with its level of usage or
decline in value through that period.


Depreciation

a) Of capital stock: decline in the value of capital due to its wearing out or becoming obsolete.
b) Of currency: decline in the exchange rate.


Depreciation

The systematic and rational allocation of the cost of property, plant, and equipment
over their useful lives. Refer also to amortization and depletion.


Depreciation

Amortization of fixed assets, such as plant and equipment, so as to allocate the cost over their depreciable life.


Depreciation Allowances

Tax deductions that businesses can claim when they spend money on investment goods.


Depreciation expense

An expense account that represents the portion of the cost of an asset that is being charged to expense during the current period.


Depreciation tax shield

The value of the tax write-off on depreciation of plant and equipment.


depreciation tax shield

Reduction in taxes attributable to the depreciation allowance.


Depression

A prolonged period of very low economic activity with large-scale unemployment.


Double-declining-balance depreciation

Method of accelerated depreciation.


Earnings before interest, taxes, depreciation and amortization (EBITDA)

The operating profit before deducting interest, tax, depreciation and amortization.


Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)

An earningsbased measure that, for many, serves as a surrogate for cash flow. Actually consists of working
capital provided by operations before interest and taxes.


EBDDT - Earnings before depreciation and deferred taxes

This measure is used principally by
firms in the real estate industry, with the exception of real estate investment trusts, which typically
do not pay taxes.


Effective spread

The gross underwriting spread adjusted for the impact of the announcement of the common
stock offering on the firm's share price.


FHA prepayment experience

The percentage of loans in a pool of mortgages outstanding at the origination
anniversary, based on annual statistical historic survival rates for FHA-insured mortgages.


Financial press

That portion of the media devoted to reporting financial news.


Flat trades

1) A bond in default trades flat; that is, the price quoted covers both principal and unpaid,
accrued interest.
2) Any security that trades without accrued interest or at a price that includes accrued
interest is said to trade flat.


Floating-rate preferred

preferred stock paying dividends that vary with short-term interest rates.


Floor trader

A member who generally trades only for his own account, for an account controlled by him or
who has such a trade made for him. Also referred to as a "local".


Forward premium

A currency trades at a forward premium when its forward price is higher than its spot price.


Forward trade

A transaction in which the settlement will occur on a specified date in the future at a price
agreed upon the trade date.


Free Trade

The absence of any government restrictions, such as tariffs or quotas, on imports or exports.


Great Depression

The period of very high unemployment during the early 1930s.


Gross spread

The fraction of the gross proceeds of an underwritten securities offering that is paid as
compensation to the underwriters of the offering.


Horizontal spread

The simultaneous purchase and sale of two options that differ only in their exercise date.


Information-motivated trades

trades in which an investor believes he or she possesses pertinent
information not currently reflected in the stock's price.


Informationless trades

trades that are the result of either a reallocation of wealth or an implementation of an
investment strategy that only utilizes existing information.


Intermarket spread swaps

An exchange of one bond for another based on the manager's projection of a
realignment of spreads between sectors of the bond market.


Intramarket sector spread

The spread between two issues of the same maturity within a market sector. For
instance, the difference in interest rates offered for five-year industrial corporate bonds and five-year utility
corporate bonds.


Involuntary liquidation preference

A premium that must be paid to preferred or preference stockholders if
the issuer of the stock is forced into involuntary liquidation.


Lag response of prepayments

There is typically a lag of about three months between the time the weighted
average coupon of an MBS pool has crossed the threshold for refinancing and an acceleration in prepayment
speed is observed.


Level Premium

A premium that remains unchanged throughout the life of a policy


Level Premium Life Insurance

This is a type of insurance for which the cost is distributed evenly over the premium payment period. The premium remains the same from year to year and is more than actual cost of protection in the earlier years of the policy and less than the actual cost of protection in the later years. The excess paid in the early years builds up a reserve to cover the higher cost in the later years.


Liquidity preference hypothesis

The argument that greater liquidity is valuable, all else equal. Also, the
theory that the forward rate exceeds expected future interest rates.


Liquidity premium

Forward rate minus expected future short-term interest rate.


market risk premium

Risk premium of market portfolio. Difference between market return and return on risk-free Treasury bills.


Market segmentation theory or preferred habitat theory

A biased expectations theory that asserts that the
shape of the yield curve is determined by the supply of and demand for securities within each maturity sector.


maturity premium

Extra average return from investing in longversus short-term Treasury securities.


Maturity spread

The spread between any two maturity sectors of the bond market.


Monthly income preferred security (MIP)

preferred stock issued by a subsidiary located in a tax haven.
The subsidiary relends the money to the parent.


Net adjusted present value

The adjusted present value minus the initial cost of an investment.


Net present value

A discounted cash flow methodology that uses a required rate of
return (usually a firm’s cost of capital) to determine the present value of a stream of
future cash flows, resulting in a net positive or negative value.


net present value method

a process that uses the discounted
cash flows of a project to determine whether the
rate of return on that project is equal to, higher than, or
lower than the desired rate of return


Net present value (NPV)

The present value of the expected future cash flows minus the cost.


Net present value (NPV)

A discounted cash flow technique used for investment appraisal that calculates the present value of future cash flows and deducts the initial capital investment.


net present value (NPV)

Equals the present value (PV) of a capital investment
minus the initial amount of capital that is invested, or the entry cost
of the investment. A positive NPV signals an attractive capital investment
opportunity; a negative NPV means that the investment is substandard.


Net Present Value (NPV)

The present value of all future cash inflows minus the present value
of all cash outflows


net present value (NPV)

the difference between the present values of all cash inflows and outflows for an investment project


net present value (NPV)

present value of cash flows minus initial investment.


Net Present Value (NPV) Method

A method of ranking investment proposals. NPV is equal to the present value of the future returns, discounted at the marginal cost of capital, minus the present value of the cost of the investment.


Net present value of future investments

The present value of the total sum of NPVs expected to result from
all of the firm's future investments.


Net present value of growth opportunities

A model valuing a firm in which net present value of new
investment opportunities is explicitly examined.


Net present value rule

An investment is worth making if it has a positive NPV. Projects with negative NPVs
should be rejected.


Non-cumulative preferred stock

preferred stock whose holders must forgo dividend payments when the
company misses a dividend payment.
Related: Cumulative preferred stock


North American Free Trade Agreement (NAFTA)

an agreement among Canada, Mexico, and the United States establishing the North American Free trade Zone, with a resulting reduction in trade barriers


NPV (net present value of cash flows)

Same as PV, but usually includes a subtraction for an initial cash outlay.


Option-adjusted spread (OAS)

1) The spread over an issuer's spot rate curve, developed as a measure of
the yield spread that can be used to convert dollar differences between theoretical value and market price.
2) The cost of the implied call embedded in a MBS, defined as additional basis-yield spread. When added to the
base yield spread of an MBS without an operative call produces the option-adjusted spread.


Option premium

The option price.


Posttrade benchmarks

Prices after the decision to trade.



 

 

 

 

 

 

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