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- Advance refunding.
- A financing structure under which new bonds are issued to repay
an outstanding bond issue prior to its first call date. Generally,
the proceeds of the new issue are invested in government securities,
which are placed in escrow. The interest and principal repayments
on these securities are then used to repay the old issue, usually
on the first call date.
- Bid.
- The price at which a buyer will purchase a security
- Bearer security.
- A security that has no identification as to owner. It is presumed
to be owned, therefore, by the bearer or the person who holds it.
Bearer securities are freely and easily negotiable since ownership
can be quickly transferred from seller to buyer.
- Bond funds.
- Registered investment companies whose assets are invested in diversified
portfolios of bonds.
- Callable bonds.
- Bonds which are redeemable by the issuer prior to the specified
maturity date at a specified price at or above par.
- Call premium.
- A dollar amount, usually stated as a percentage of the principal
amount called, paid as a "penalty" or a "premium"
for the exercise of a call provision.
- Coupon.
- This part of a bond denotes the amount of interest due, and on what
date and where the payment is to be made. Bearer coupons are presented
to the issuer's designated paying agent or deposited in a commercial
bank for collection. In the case of registered coupons (see "Registered
bond"), the interest payment is mailed directly to the registered
holder. Coupons are generally payable semiannually.
- Current yield.
- The ratio of interest to the actual market price of the bond stated
as a percentage. For example, a $1,000 bond that pays $80 per year
in interest would have a current yield of 8%.
- CUSIP.
- The Committee on Uniform Security Identification Procedures, which
was established under the auspices of the American Bankers Association
to develop a uniform method of identifying municipal, U.S. government,
and corporate securities.
- Dated date (or issue date).
- The date of a bond issue from which the bondholder is entitled to
receive interest, even though the bonds may actually be delivered
at some other date.
- Default.
- Failure to pay principal or interest promptly when due.
- Discount.
- The amount by which the purchase price of a security is less than
the principal amount or par value.
- Double exemption.
- Securities that are exempt from state as well as federal income
taxes are said to have double exemption.
- Extraordinary redemption.
- This is different from optional redemption or mandatory redemption
in that it occurs under an unusual circumstance such as destruction
of the facility financed.
- Face amount.
- The par value (i.e., principal or maturity value) of a security
appearing on the face of the instrument.
- Floating-rate bond.
- A long-term bond for which the interest rate is adjusted periodically
according to a pre-determined formula, based upon specific market
indicators.
- Interest.
- Compensation paid or to be paid for the use of money. Interest is
generally expressed as an annual percentage rate.
- Issuer.
- A state, political subdivision, agency or authority which borrows
money through the sale of bonds or notes.
- Legal opinion.
- An opinion concerning the validity of a securities issue with respect
to statutory authority, constitutionality, procedural conformity and
usually the exemption of interest from federal income taxes. The legal
opinion is usually rendered by a law firm recognized as specializing
in public borrowings, often referred to as "bond counsel."
- Limited tax bond.
- A bond secured by a pledge of a tax or category of taxes limited
as to rate or amount.
- Marketability.
- A measure of the ease with which a security can be sold in the secondary
market.
- Maturity.
- The date when the principal amount of a security becomes due and
payable.
- Moral obligation bond.
- A revenue bond which, in addition to its primary source of security,
possesses a structure whereby a state pledges to make up shortfalls
in a debt service reserve fund, subject to legislative appropriation.
There is no legal obligation for the state to make such a payment,
but market participants recognize that failure to honor the "moral"
pledge would have negative consequences for the state's own creditworthiness.
- Non-callable bond.
- A bond that cannot be called either for redemption by or at the
option of the issuer before its specified maturity date.
- Notes.
- Short-term promises to pay specified amounts of money, secured by
specified sources of future revenues, such as taxes, federal and state
aid payments and bond proceeds.
- Offering price.
- The price at which members of an underwriting syndicate for a new
issue will offer securities to investors.
- Official statement.
- Document prepared by or for the issuer that gives in detail security
and financial information about the issue.
- Optional redemption.
- A right to retire all or part of an issue prior to the stated maturity
during a specified period of years, often at a premium. The right
can be exercised at the option of the issuer.
- Original issue discount.
- A bond, issued at a dollar price less than par which qualifies for
special treatment under federal tax law. Under that law, the difference
between the issue price and par is treated as tax-exempt income rather
than capital gain, if the bonds are held to maturity.
- Par value.
- The principal amount of a bond or note due at maturity.
- Paying agent.
- Place where principal and interest are payable. Usually a designated
bank or the office of the treasurer of the issuer.
- Premium.
- The amount by which the price of a security exceeds its principal
amount.
- Principal.
- The face amount of a bond, exclusive of accrued interest and payable
at maturity.
- Ratings.
- Designations used by investors' services to give relative indications
of credit quality.
- Registered bond.
- A bond whose owner is registered with the issuer or its agent either
as to both principal and interest or as to principal only. Transfer
of ownership can only be accomplished when the securities are properly
endorsed by the registered owner.
- Special tax bond.
- A bond secured by a special tax, such as a gasoline tax.
- Swap.
- Simply, the sale of a block of bonds and the purchase of another
block of similar market value. Swaps may be made to achieve many goals,
including establishing a tax loss, upgrading credit quality, extending
or shortening maturity, etc.
- Trade date.
- The date when a bond transaction is executed.
- Trustee.
- A bank designated by the issuer as the custodian of funds and official
representative of bondholders. Trustees are appointed to ensure compliance
with the contract and represent bondholders to enforce their contract
with the issuers.
- Unit investment trust (municipal).
- A fixed portfolio of tax-exempt bonds sold in fractional, undivided
interests.
- Unlimited tax bond.
- A bond secured by the pledge of taxes that are not limited by rate
or amount.
- Yield to maturity.
- A yield concept designed to give the investor the average annual
yield on a security. It is based on the assumption that the security
is held to maturity and that all interest received over the life of
the security can be reinvested at the yield to maturity.
- Zero-coupon bond.
- A bond where no periodic interest payments are made. The investor
receives one payment - at maturity. The maturity value an investor
receives is equal to the principal invested plus interest earned compounded
semiannually at the original interest rate to maturity.
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