Financial Terms Preferred equity redemption stock (PERC)

# Definition of Preferred equity redemption stock (PERC)

## Preferred equity redemption stock (PERC)

preferred stock that converts automatically into equity at a
stated date. A limit is placed on the value of the shares the investor receives.

# Related Terms:

## Acquisition of stock

A merger or consolidation in which an acquirer purchases the acquiree's stock.

## Adjustable rate preferred stock (ARPS)

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

## All equity rate

The discount rate that reflects only the business risks of a project and abstracts from the
effects of financing.

## American Stock Exchange (AMEX)

The second-largest stock exchange in the United States. It trades
mostly in small-to medium-sized companies.

## Annual percentage rate (APR)

The periodic rate times the number of periods in a year. For example, a 5%
quarterly return has an APR of 20%.

## Annual percentage yield (APY)

The effective, or true, annual rate of return. The APY is the rate actually
earned or paid in one year, taking into account the affect of compounding. The APY is calculated by taking
one plus the periodic rate and raising it to the number of periods in a year. For example, a 1% per month rate
has an APY of 12.68% (1.01^12).

## Asset/equity ratio

The ratio of total assets to stockholder equity.

## Auction rate preferred stock (ARPS)

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

## Beta equation (Stocks)

The beta of a stock is determined as follows:
[(n) (sum of (xy)) ]-[(sum of x) (sum of y)]
[(n) (sum of (xx)) ]-[(sum of x) (sum of x)]
where: n = # of observations (24-60 months)
x = rate of return for the S&P 500 Index
y = rate of return for the stock

## Bottom-up equity management style

A management style that de-emphasizes the significance of economic
and market cycles, focusing instead on the analysis of individual stocks.

## Common stock

These are securities that represent equity ownership in a company. Common shares let an
investor vote on such matters as the election of directors. They also give the holder a share in a company's
profits via dividend payments or the capital appreciation of the security.

## Common stock/other equity

Value of outstanding common shares at par, plus accumulated retained
earnings. Also called shareholders' equity.

## Common stock equivalent

A convertible security that is traded like an equity issue because the optioned

## Common stock market

The market for trading equities, not including preferred stock.

## Common stock ratios

Ratios that are designed to measure the relative claims of stockholders to earnings
(cash flow per share), and equity (book value per share) of a firm.

## Conflict between bondholders and stockholders

These two groups may have interests in a corporation that
conflict. Sources of conflict include dividends, distortion of investment, and underinvestment. Protective
covenants work to resolve these conflicts.

## 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.

## Cumulative preferred stock

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

## Debt/equity ratio

Indicator of financial leverage. Compares assets provided by creditors to assets provided
by shareholders. Determined by dividing long-term debt by common stockholder equity.

## Deferred equity

A common term for convertible bonds because of their equity component and the
expectation that the bond will ultimately be converted into shares of common stock.

## Direct stock-purchase programs

The purchase by investors of securities directly from the issuer.

## Dividend yield (Stocks)

Indicated yield represents annual dividends divided by current stock price.

## Dual syndicate equity offering

An international equity placement where the offering is split into two
tranches - domestic and foreign - and each tranche is handled by a separate lead manager.

## Employee stock fund

A firm-sponsored program that enables employees to purchase shares of the firm's
common stock on a preferential basis.

## Employee stock ownership plan (ESOP)

A company contributes to a trust fund that buys stock on behalf of
employees.

## Equity

Represents ownership interest in a firm. Also the residual dollar value of a futures trading account,
assuming its liquidation at the going market price.

## Equity cap

An agreement in which one party, for an upfront premium, agrees to compensate the other at
specific time periods if a designated stock market benchmark is greater than a predetermined level.

## Equity claim

Also called a residual claim, a claim to a share of earnings after debt obligation have been
satisfied.

## Equity collar

The simultaneous purchase of an equity floor and sale of an equity cap.

## Equity contribution agreement

An agreement to contribute equity to a project under certain specified
conditions.

## Equity floor

An agreement in which one party agrees to pay the other at specific time periods if a specific
stock market benchmark is less than a predetermined level.

## Equity kicker

Used to refer to warrants because they are usually issued attached to privately placed bonds.

## Equity market

Related:stock market

## Equity multiplier

Total assets divided by total common stockholders' equity; the amount of total assets per
dollar of stockholders' equity.

## Equity options

Securities that give the holder the right to buy or sell a specified number of shares of stock, at
a specified price for a certain (limited) time period. Typically one option equals 100 shares of stock.

## Equity swap

A swap in which the cash flows that are exchanged are based on the total return on some stock
market index and an interest rate (either a fixed rate or a floating rate). Related: interest rate swap.

Related: Variable life

## Equityholders

Those holding shares of the firm's equity.

## Euroequity issues

Securities sold in the Euromarket. That is, securities initially sold to investors
simultaneously in several national markets by an international syndicate. Euromarket.
Related: external market

## Exchange of stock

Acquisition of another company by purchase of its stock in exchange for cash or shares.

## Floating-rate preferred

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

## Foreign equity market

That portion of the domestic equity market that represents issues floated by foreign companies.

## GEMs (growing-equity mortgages)

Mortgages in which annual increases in monthly payments are used to
reduce outstanding principal and to shorten the term of the loan.

## Growth stock

Common stock of a company that has an opportunity to invest money and earn more than the
opportunity cost of capital.

## Income stock

Common stock with a high dividend yield and few profitable investment opportunities.

## Investor's equity

The balance of a margin account. Related: buying on margin, initial margin requirement.

## Letter stock

Privately placed common stock, so-called because the SEC requires a letter from the purchaser
stating that the stock is not intended for resale.

## Leveraged equity

stock in a firm that relies on financial leverage. Holders of leveraged equity face the
benefits and costs of using debt.

## Listed stocks

stocks that are traded on an exchange.

## Long-term debt to equity ratio

A capitalization ratio comparing long-term debt to shareholders' equity.

## Listed stocks

stocks that are traded on an exchange.

## Mandatory redemption schedule

Schedule according to which sinking fund payments must be made.

## Margin account (Stocks)

A leverageable account in which stocks can be purchased for a combination of
cash and a loan. The loan in the margin account is collateralized by the stock and, if the value of the stock
drops sufficiently, the owner will be asked to either put in more cash, or sell a portion of the stock. Margin
rules are federally regulated, but margin requirements and interest may vary among broker/dealers.

## 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.

## Monthly income preferred security (MIP)

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

## New York Stock Exchange (NYSE)

Also known as the Big Board or The Exhange. More than 2,00 common
and preferred stocks are traded. The exchange is the older in the United States, founded in 1792, and the
largest. It is lcoated on Wall Street in New York City

## Non-cumulative preferred stock

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

## Optimal redemption provision

Provision of a bond indenture that governs the issuer's ability to call the
bonds for redemption prior to their scheduled maturity date.

A securities exchange where American and European foreign
currency options on spot exchange rates are traded.

## Preference stock

A security that ranks junior to preferred stock but senior to common stock in the right to
receive payments from the firm; essentially junior preferred stock.

## Preferred habitat theory

A biased expectations theory that believes the term structure reflects the
expectation of the future path of interest rates as well as risk premium. However, the theory rejects the
assertion that the risk premium must rise uniformly with maturity. Instead, to the extent that the demand for
and supply of funds does not match for a given maturity range, some participants will shift to maturities
showing the opposite imbalances. As long as such investors are compensated by an appropriate risk premium
whose magnitude will reflect the extent of aversion to either price or reinvestment risk.

## Preferred shares

preferred shares give investors a fixed dividend from the company's earnings. And more
importantly: preferred shareholders get paid before common shareholders. See: preferred stock.

## Preferred stock

A security that shows ownership in a corporation and gives the holder a claim, prior to the
claim of common stockholders, on earnings and also generally on assets in the event of liquidation. Most
preferred stock pays a fixed dividend that is paid prior to the common stock dividend, stated in a dollar
amount or as a percentage of par value. This stock does not usually carry voting rights. The stock shares
characteristics of both common stock and debt.

## Preferred stock agreement

A contract for preferred stock.

## Redemption charge

The commission charged by a mutual fund when redeeming shares. For example, a 2%
redemption charge (also called a "back end load") on the sale of shares valued at \$1000 will result in payment of \$980 (or 98% of the value) to the investor. This charge may decrease or be eliminated as shares are held for
longer time periods.

## Redemption cushion

The percentage by which the conversion value of a convertible security exceeds the
redemption price (strike price).

## Repurchase of stock

Device to pay cash to firm's shareholders that provides more preferable tax treatment
for shareholders than dividends. Treasury stock is the name given to previously issued stock that has been
repurchased by the firm. A repurchase is achieved through either a dutch auction, open market, or tender offer.

## Return on equity (ROE)

Indicator of profitability. Determined by dividing net income for the past 12
months by common stockholder equity (adjusted for stock splits). Result is shown as a percentage. Investors
use ROE as a measure of how a company is using its money. ROE may be decomposed into return on assets
(ROA) multiplied by financial leverage (total assets/total equity).

## Reverse stock split

A proportionate decrease in the number of shares, but not the value of shares of stock
held by shareholders. Shareholders maintain the same percentage of equity as before the split. For example, a
1-for-3 split would result in stockholders owning 1 share for every 3 shares owned before the split. After the
reverse split, the firm's stock price is, in this example, worth three times the pre-reverse split price. A firm
generally institutes a reverse split to boost its stock's market price and attract investors.

## Shareholders' equity

This is a company's total assets minus total liabilities. A company's net worth is the
same thing.

## Stock

Ownership of a corporation which is represented by shares which represent a piece of the corporation's
assets and earnings.

## Stock dividend

Payment of a corporate dividend in the form of stock rather than cash. The stock dividend
may be additional shares in the company, or it may be shares in a subsidiary being spun off to shareholders.
stock dividends are often used to conserve cash needed to operate the business. Unlike a cash dividend, stock
dividends are not taxed until sold.

## Stock exchanges

Formal organizations, approved and regulated by the Securities and Exchange Commission
(SEC), that are made up of members that use the facilities to exchange certain common stocks. The two major
national stock exchanges are the New York stock Exchange (NYSE) and the American stock Exchange (ASE
or AMEX). Five regional stock exchanges include the Midwest, Pacific, Philadelphia, Boston, and Cincinnati.
The Arizona stock exchange is an after hours electronic marketplace where anonymous participants trade
stocks via personal computers.

## Stock repurchase

A firm's repurchase of outstanding shares of its common stock.

## Stock selection

An active portfolio management technique that focuses on advantageous selection of
particular stocks rather than on broad asset allocation choices.

## Stockholder equity

Balance sheet item that includes the book value of ownership in the corporation. It
includes capital stock, paid in surplus, and retained earnings.

## Stock index option

An option in which the underlying is a common stock index.

## Stock market

Also called the equity market, the market for trading equities.

## Stock option

An option in which the underlying is the common stock of a corporation.

## Stock replacement strategy

A strategy for enhancing a portfolio's return, employed when the futures
contract is expensive based on its theoretical price, involving a swap between the futures, treasury bills
portfolio and a stock portfolio.

## Stock split

Occurs when a firm issues new shares of stock but in turn lowers the current market price of its
stock to a level that is proportionate to pre-split prices. For example, if IBM trades at \$100 before a 2-for-1
split, after the split it will trade at \$50 and holders of the stock will have twice as many shares than they had
before the split. See: split.

## Stock ticker

This is a lettered symbol assigned to securities and mutual funds that trade on U.S.financial exchanges.

## Stockholder

Holder of equity shares in a firm.

## Stockholder's books

Set of books kept by firm management for its annual report that follows Financial
Accounting Standards Board rules. The tax books follow IRS tax rules.

## Stockholder's equity

The residual claims that stockholders have against a firm's assets, calculated by
subtracting total liabilities from total assets.

## Stockout

Running out of inventory.

## Stratified equity indexing

A method of constructing a replicating portfolio in which the stocks in the index
are classified into stratum, and each stratum is represented in the portfolio.

## Top-down equity management style

A management style that begins with an assessment of the overall
economic environment and makes a general asset allocation decision regarding various sectors of the financial
markets and various industries. The bottom-up manager, in contrast, selects the specific securities within the
favored sectors.

## Total debt to equity ratio

A capitalization ratio comparing current liabilities plus long-term debt to
shareholders' equity.

## Treasury stock

Common stock that has been repurchased by the company and held in the company's treasury.

## BOOK VALUE OF COMMON STOCK

The theoretical amount per share that each stockholder would receive if a companyâ€™s assets were sold on the balance sheetâ€™s date. Book value equals:
(stockholdersâ€™ equity) / (Common stock shares outstanding)

## Earnings per share of common stock

How much profit a company made on each share of common stock this year.

## RATE OF RETURN ON STOCKHOLDERSâ€™ EQUITY

The percentage return or profit that management made on each dollar stockholders invested in a company. Hereâ€™s how you figure it:
(Net income) / (stockholdersâ€™ equity)

## RATIO OF DEBT TO STOCKHOLDERSâ€™ EQUITY

A ratio that shows which groupâ€”creditors or stockholdersâ€”has the biggest stake in or the most control of a company:
(Total liabilities) / (stockholdersâ€™ equity)

## STOCK

Certificates that signify ownership in a corporation. A share of stock represents a claim on a portion of the companyâ€™s assets.

## STOCKHOLDERSâ€™ (OR OWNERSâ€™) EQUITY

The value of the ownersâ€™ interests in a company.

## Equity

Funds raised from shareholders.

See inventory.