P

COAT OF ARMS

SCARLET KNIGHT LTD.


P: Fifth letter of NASDAQ stock symbol specifying it is the company's first class of preferred shares.
P.A.C.: See: Preauthorized checks
P.A.D.: See: Preauthorized electronic debits
P.B.G.C.: See: Pension Benefit Guaranty Corporation
P.E.F.C.O.: See: Private export funding corporation
P.E.G. Ratio: See: Prospective Earnings Growth Ratio
P.E.R.C.: See: Preferred equity redemption stock
P.H.L.X.: See: Philadelphia Stock Exchange
P.I.B.O.R.: See: Paris Interbank Offer Rate
P.I.K.: See: Payment in kind bond
P.L.C.: See: Project loan certificate
P.N.: See: Project Notes
P.O.: See: Principal Only
P.V.B.P.: See: Price value of a basis point
P&L: Profit and loss statement for a trader.
P&S: Purchase and sale statement. A statement provided by the broker showing change in the customer's net ledger balance after the offset of a previously established position(s).
P/E: See: Price/Earnings ratio.
P/E effect: That portfolios with low P/E stocks have exhibited higher average risk-adjusted returns than high P/E stocks. Related: value manager.
P/E ratio: Assume XYZ Co. sells for $25.50 per share and has earned $2.55 per share this year;; $25. 50 = 10 times $2. 55; XYZ stock sells for 10 times earnings. P/E = Current stock price divided by trailing annual earnings per share or expected annual earnings per share.
PSA: A prepayment model based on an assumed rate of prepayment each month of the then unpaid principal balance of a pool of mortgages. PSA is used primarily to derive an implied prepayment speed of new production loans, a 100% PSA assumes a prepayment rate of 2% per month in the first month following the date of issue, increasing at 2% per month thereafter until the 30^th month. Thereafter, 100% PSA is the same as 6% CPR.
Pacific Stock Exchange: Used for listed equity securities. Regional exchange located in Los Angeles and San Francisco; only U.S. listed exchange open between 4:00 and 4:30.
Pac-Man strategy: Takeover defense strategy in which the prospective acquiree retaliates against the acquirer's tender offer by launching its own tender offer for the other firm.
Paid in capital: Capital received from investors in exchange for stock, but not stock from capital generated from earnings or donated. This account includes capital stock and contributions of stockholders credited to accounts other than capital stock. It would also include surplus resulting from recapitalization.
Paid in surplus: See: Paid in capital
Par: Equal to the nominal or face value of a security. A bond selling at "par," for instance, is worth an amount equivalent to its original issue value or its value upon redemption at maturity -- typically $1000/bond. See: discount, premium.
Paired off: Used for listed equity securities. Matched buy and sell market orders, usually pertaining to the pre-opening market picture in a stock, or M.O.C. orders (especially relating to futures/options expirations).
Pairoff: A buy-back to offset and effectively liquidate a prior sale of securities.
Paper: Money market instruments, commercial paper and other.
Paper gain (loss): Unrealized capital gain (loss) on securities held in a portfolio, based on a comparison of current market price to original cost.
Parallel loan: A process whereby two companies in different countries borrow each other's currency for a specific period of time, and repay the other's currency at an agreed maturity for the purpose of reducing foreign exchange risk. Also referred to as back-to-back loans.
Parallel shift in the yield curve: A shift in the yield curve in which the change in the yield on all maturities is the same number of basis points. In other words, if the 3 month T-bill increases 100 basis points (one percent), then the 6 month, 1 year, 5 year, 10 year, 20 year, and 30 year rates increase by 100 basis points as well. Related: Non-parallel shift in the yield curve.
Parameter: A representation that characterizes a part of a model (e.g. a growth rate), the value of which is determined outside of the model. See: exogenous variable.
Parity: For convertibles, level at which a convertible security's market price equals the aggregate value of the underlying common stock; value/worth of the convertible bond considered upon only as an equity instrument. (conversion ratio x common price.) See: conversion value. For international parity, US$ price of a foreign stock's last sale in an overseas market. (local currency stock price x forex rate x A.D.R. ratio). For listed parity, condition whereby no party has floor priority, and matching thus occurs. For options parity, dollar amount by which an option is in-the-money. See: intrinsic value.
Parity value: Related: conversion value
Parking violation: Often used in risk arbitrage. Illegal holding of stock by a third party, or the financing of such a stock, in which the third party's sole reason for holding such stock is to conceal ownership/control of a raider, thus sidestepping the Williams Act requirements of 5% holding limits. See: Rule 13d.
Partial: Used in the context of general equities. Trade whose size is only part of the total customer indication/order, usually done to avoid a compromise in price and also to get the customer started versus losing his total, larger, inquiry/order to a competitor.
"Participate but do not initiate": Used for listed equity securities. "Participate in the side of the market indicated by the order, but do not initiate the interest that causes the trade to take place." This kind of order can cause one to "miss stock" because he is at the mercy of the player who does initiate the trade. See: market order go along, percentage order.
Participating buyer/seller: Used for listed equity securities. (1)Customer willing to buy/sell in-line with market. (2)Buyer/seller who goes along with another buyer/seller in a percentage order.
Participating fees: The portion of total fees in a syndicated credit that go to the participating banks.
Participating GIC: A guaranteed investment contract where the policyholder is not guaranteed a crediting rate, but instead receives a return based on the actual experience of the portfolio managed by the life company.
Participation certificates: Used in the context of general equities. Certificate representing an interest in a pool of funds or in other instruments, such as foreign securities, that allow participation in the rise or fall of a security or group of securities.
Partner: Business associate who shares equity in a firm.
Partnership: Shared ownership among two or more individuals, some of whom may, but do not necessarily, have limited liability. See: general partnership, limited partnership, and master limited partnership.
Par value: Also called the maturity value or face value, the amount that the issuer agrees to pay at the maturity date.
Passive investment strategy: See: passive management.
Passive investment management: Buying a well-diversified portfolio to represent a broad-based market index without attempting to search out mispriced securities.
Passive portfolio: A market index portfolio.
Passive portfolio strategy: A strategy that involves minimal expectational input, and instead relies on diversification to match the performance of some market index. A passive strategy assumes that the marketplace will reflect all available information in the price paid for securities, and therefore, does not attempt to find mispriced securities. Related: active portfolio strategy
Pass-through coupon rate: The interest rate paid on a securitized pool of assets, which is less than the rate paid on the underlying loans by an amount equal to the servicing and guaranteeing fees.
Pass-through rate: The net interest rate passed through to investors after deducting servicing, management, and guarantee fees from the gross mortgage coupon.
Pass-through securities: A pool of fixed-income securities backed by a package of assets (i.e. mortgages) where the holder receives the principal and interest payments. Related: mortgage pass-through security
Path dependent option: An option whose value depends on the sequence of prices of the underlying asset rather than just the final price of the asset.
Payables: Related: Accounts payable.
Payable through drafts: A method of making payment that is used to maintain control over payments made on behalf of the firm by personnel in noncentral locations. The payer's bank delivers the payable through draft to the payer, which must approve it and return it to the bank before payment can be received.
Payback: The length of time it takes to recover the initial cost of a project, without regard to the time value of money.
Paydown: In a Treasury refunding, the amount by which the par value of the securities maturing exceeds that of those sold. Used in the context of general equities. To pay a lesser price in an accumulation of stock. Antithesis of pay up.
Payment date: The date on which each shareholder of record will be sent a check for the declared dividend.
Payment float: Company-written checks that have not yet cleared.
Payment-In-Kind (P.I.K.) bond: A bond that gives the issuer an option (during an initial period) either to make coupon payments in cash or in the form of additional bonds.
Payments netting: Reducing fund transfers between affiliates to only a netted amount. Netting can be done on a bilateral basis (between pairs of affiliates), or on a multi-lateral basis (taking all affiliates together).
Payments pattern: Describes the lagged collection pattern of receivables, for instance the probability that a 72-day-old account will still be unpaid when it is 73-days-old.
Payoff diagram: In option pricing, a graph of the value of the option position at expiration as a function of the underlying asset price.
Payout ratio: Generally, the proportion of earnings paid out to the common stockholders as cash dividends. More specifically, the firm's cash dividend divided by the firm's earnings in the same reporting period.
Pay-up: The loss of cash resulting from a swap into higher price bonds or the need/willingness of a bank or other borrower to pay a higher rate of interest to get funds. Used in the context of general equities. (1)Situation when an investor who wants to buy a stock at a particular price hesitates and the stock begins to rise; instead of letting the stock go, he "pays up" to buy the shares at the higher prevailing price. 2) Buy shares in a high quality company at what is felt to be a high, but worthy, price due to its quality.
P-coast: Used for listed equity securities. See: Pacific Stock Exchange.
Peak: The transition from the end of an economic expansion to the start of a contraction.
Pecking-order view (of capital structure): The argument that external financing transaction costs, especially those associated with the problem of adverse selection, create a dynamic environment in which firms have a preference, or pecking-order of preferred sources of financing, when all else is equal. Internally generated funds are the most preferred, followed by new debt, debt-equity hybrids, and finally, new equity at the least preferred source.
Penny stock: Used in the context of general equities. Stock that typically sells for less than $1 a share, although it may rise to as much as $10/share after the initial public offering, usually because of heavy promotion. All are traded O.T.C., many of them in the local markets of Denver, Vancouver, or Salt Lake City.
Pension Benefit Guaranty Corporation (P.B.G.C.): A federal agency that insures the vested benefits of pension plan participants (established in 1974 by the ERISA legislation).
Pension plan: A fund that is established for the payment of retirement benefits.
Pension sponsors: Organizations that have established a pension plan.
Percentage order: Used for listed equity securities. Market limited price order to buy/sell a specified percentage (usually 50%) of shares traded (sometimes after a fixed number of shares of the stock have already traded). See: participating buyer/seller, "participate but do not initiate."
Percentage premium: Mainly applies to convertible securities. Premium over parity of a convertible bond divided by parity.
Percent to double: Percentage that the stock price has to rise (fall) to double the price of the call (put).
Perfect capital market: A market in which there are never any arbitrage opportunities.
Perfect competition: An idealized market environment in which every market participant is too small to affect the market price by acting on its own.
Perfected first lien: A first lien that is duly recorded with the cognizant governmental body so that the lender will be able to act on it should the borrower default.
Perfect hedge: A financial result in which the profit and loss from the underlying asset and the hedge position are equal.
Perfectly competitive financial markets: Markets in which no trader has the power to change the price of goods or services. Perfect capital markets are characterized by the following conditions: 1)trading is costless, and access to the financial markets is free, 2)information about borrowing and lending opportunities is freely available, 3 there are many traders, and no single trader can have a significant impact on market prices.
Perfect market view (of capital structure): Analysis of a firm's capital structure decision, which shows the irrelevance of capital structure in a perfect capital market.
Perfect market view (of dividend policy): Analysis of a decision on dividend policy, in a perfect capital market environment, that shows the irrelevance of dividend policy in a perfect capital market.
Performance attribution analysis: The decomposition of a money manager's performance results to explain the reasons why those results were achieved. This analysis seeks to answer the following questions: (1) What were the major sources of added value? (2) Was short-term factor timing statistically significant? (3) Was market timing statistically significant? And (4), Was security selection statistically significant?
Performance evaluation: The evaluation of a manager's performance which involves, first, determining whether the money manager added value by outperforming the established benchmark (performance measurement) and, second, determining how the money manager achieved the calculated return (performance attribution analysis).
Performance measurement: The calculation of the return realized by a money manager over some time interval.
Performance shares: Shares of stock given to managers on the basis of performance as measured by earnings per share and similar criteria. A control device used by shareholders to tie management to the self-interest of shareholders.
Periodic rate: The monthly effective interest rate. For example, the periodic rate on a credit card with an 18% annual percentage rate is 1.5% per month.
Perpetual warrants: Warrants that have no expiration date.
Perpetuity: A constant stream of identical cash flows without end, such as a British consol.
Perquisites: Personal benefits, including direct benefits, such as the use of a firm car or expense account for personal business, and indirect benefits, such as up-to-date office décor.
Personal tax view (of capital structure): The argument that the difference in personal tax rates between income from debt and income from equity eliminates the disadvantage from the double taxation (corporate and personal) of income from equity.
Personal trust: An interest in an asset held by a trustee for the benefit of another person.
Philadelphia Stock Exchange (P.H.L.X.): A securities exchange where American and European foreign currency options on spot exchange rates are traded.
Phillips Curve: A graph that supposedly shows the relationship between inflation and unemployment. It is conjectured that there is a simple tradeoff between inflation and unemployment (high inflation and low unemployment and low inflation and high unemployement). Obviously, the relation between these important macroeconomic variables is more complicated than this simple graph would suggest. Named after A. W. Phillips. For a modern treatment, see work of Robert Lucas.
Phone switching: In mutual funds, the ability to transfer shares between funds in the same family by telephone request. There may be a charge associated with these transfers. Phone switching is also possible among different fund families if the funds are held in street name by a participating broker/dealer.
Paris Interbank Offer Rate (P.I.B.O.R.): The deposit rate on interbank transactions in the Eurocurrency market quoted in Paris.
Pickup: The gain in yield that occurs when a block of bonds is swapped for another block of higher-coupon bonds.
Picture: The bid and asked prices quoted by a broker for a given security. Used for listed equity securities. Bid and ask prices and quantity information from a specialist or from a dealer regarding a particular security (i.e., "IBM's 1/4 to 1/2, 5m by 10m").
Piece: Mainly applies to convertible securities. Increment of bonds that trade in portions of $1,000 minimum. Not all bonds can be traded in "pieces," and the increments can vary.
Pie model of capital structure: A model of the debt/equity ratio of the firms, graphically depicted in slices of a pie that represent the value of the firm in the captial markets.
Piggyback Registration: A situation when a securities underwriter allows existing holdings of shares in a corporation to be sold in combination with an offering of new public shares.
Pink sheets: Refers to over-the-counter trading. Daily publication of the national quotation bureau that details the bid and ask prices of thousands of O.T.C. stocks, as well as market-makers who trade each stock.
Pip: Used for listed equity securities. Smallest unit of a currency (i.e., cents, 1/100 yen, pfenig, shilling).
Pit: A specific area of the trading floor that is designed for the trading of commodities, individual futures, or option contracts.
Pit committee: A committee of the exchange that determines the daily settlement price of futures contracts.
Pivot: Price level established as being significant by market's failure to penetrate or as being significant when a sudden increase in volume accompanies the move through the price level.
Placement: A bank depositing Eurodollars with (selling Eurodollars to) another bank is often said to be making a placement.
Plain vanilla: A term that refers to a relatively simple derivative financial instrument, usually a swap or other derivative that is issued with standard features.
Plan for reorganization: A plan for reorganizing a firm during the Chapter 11 bankruptcy process.
Planned amortization class (P.A.C.): (1) One class of C.M.O. that carries the most stable cash flows and the lowest prepayment risk of any class of C.M.O. Because of a stable cash flow, it is considered the least risky C.M.O. (2) A C.M.O. bond class that stipulates cash-flow contributions to a sinking fund. With the P.A.C., principal payments are directed to the sinking fund on a priority basis in accordance with a predetermined payment schedule, with prior claim to the cash flows before other C.M.O. classes. Similarly, cash flows received by the trust in excess of the sinking fund requirement are also allocated to other bond classes. The prepayment experience of the P.A.C. is therefore very stable over a wide range of prepayment experience.
Planned capital expenditure program: Capital expenditure program as outlined in the corporate financial plan.
Planned financing program: Program of short-term and long-term financing as outlined in the corporate financial plan.
Plan sponsors: The entities that establish pension plans, including private business entities acting for their employees; state and local entities operating on behalf of their employees; unions acting on behalf of their members; and individuals representing themselves.
Planning horizon: The length of time a model projects into the future.
Player: Used in the context of general equities. Customer or trader who is actively involved in a particular stock or the market in general.
Plowback rate: Related: retention rate.
Plug: A variable that handles financial slack in the financial plan.
Plus: Dealers in government bonds normally give price quotes in 32nds. To quote a bid or offer in 64ths, they use pluses; a dealer who bids 4+ is bidding the handle plus 4/32 + 1/64, which equals the handle plus 9/64.
Plus a match: Used for listed equity securities. Floor indication that someone is on the floor with equal priority standing who wants to buy/sell at least the same number of shares at the same price as one's order. Outside. See: matched orders. Compare to ahead.
Plus tick: Used in the context of general equities. Trade occurring at a price higher than the previous sale. Uptick. Antithesis of minus tick. See: short sale.
Plus tick seller: Used for listed equity securities. A short seller (referring to the regulation requiring a plus tick to short).
Point: The smallest unit of price change quoted or, one one-hundredth of a percent. Related: minimum price fluctuation and tick.
Point and figure chart: A price-only chart that takes into account only whole integer changes in price, i.e., a 2-point change. Point and figure charting disregards the element of time and is solely used to record changes in price.
Poison pill: Anti-takeover device that gives a prospective acquiree's shareholders the right to buy shares of the firm or shares of anyone who acquires the firm at a deep discount to their fair market value. Named after the cyanide pill that secret agents are instructed to swallow if capture is imminent.
Poison put: A covenant allowing the bondholder to demand repayment in the event of a hostile merger.
Policy asset allocation: A long-term asset allocation method, in which the investor seeks to assess an appropriate long-term "normal" asset mix that represents an ideal blend of controlled risk and enhanced return.
Political risk: Possibility of the expropriation of assets, changes in tax policy, restrictions on the exchange of foreign currency, or other changes in the business climate of a country.
Pool factor: The outstanding principal balance divided by the original principal balance with the result expressed as a decimal. Pool factors are published monthly by the Bond Buyer newspaper for Ginnie Mae, Fannie Mae, and Freddie Mac(Federal Home Loan Mortgage Corporation) M.B.S.s.
Pooling of interests: An accounting method for reporting acquisitions accomplished through the use of equity. The combined assets of the merged entity are consolidated using book value, as opposed to the purchase method, which uses market value. The merging entities' financial results are combined as though the two entities have always been a single entity.
Porcupine provision: Often used in risk arbitrage. See: Shark repellent.
Portfolio: A collection of investments, real and/or financial.
Portfolio beta: Used in the context of general equities. The beta of the portfolio is the weighted sum of the individual asset betas. The weights are simply the investment weights in the portfolio. E.g. if 50% of money in stock A with a beta of 2.00 and 50% of money in stock B with a beta of 1.00; the portfolio beta is 1.50. Relative volatility of an individual securities portfolio, taken as a whole, as measured by the individual stock betas of the securities making it up. A beta of 1.05 relative to the S&P 500 implies that if the S&P's excess return increases by 10% the portfolio is expected to increase by 10.5%.
Portfolio insurance: A strategy using a leveraged portfolio in the underlying stock to create a synthetic put option. The strategy's goal is to ensure that the value of the portfolio does not fall below a certain level.
Portfolio internal rate of return: The rate of return computed by first determining the cash flows for all the bonds in the portfolio and then finding the interest rate that will make the present value of the cash flows equal to the market value of the portfolio.
Portfolio level: Used in the context of general equities. Indication not yet at the institutional trading desk but being considered by the portfolio manager. Less certainty exists because the institutional trading desk itself has not received a firm order, only the manager's interest. Show me type customer whose attitude is one of pickiness on price, either due to his own feeling on the stock or constraints imposed upon him as a fiduciary for a portfolio of stocks (and thus his need to examine the portfolio goals and restraints before transacting).
Portfolio management: Related: Investment management
Portfolio manager: Used in the context of general equities. Professional responsible for the securities portfolio of an individual or institutional investor, such as a mutual fund, pension fund, profit-sharing plan, bank trust department, or insurance company. In return for a fee, the manager has the fiduciary responsibility to manage the assets prudently and choose which asset types are most appropriate over time. Related: Investment manager
Portfolio R²: Used in the context of general equities. Number between 0 and 1 that measures the strength of correlation of movement between the portfolio/stock and the index. Indeed, the R² is the square of the correlation. For hedging purposes, the higher the R² the better.
Portfolio opportunity set: The expected return/standard deviation pairs of all portfolios that can be constructed from a given set of assets.
Portfolio separation theorem: An investor's choice of a risky investment portfolio is separate from his attitude towards risk. Related: Fisher's separation theorem.
Portfolio restructuring: Applies to derivative products. Recompostition of a portfolio's asset mix by selling off undesired asset types (equities, debt, or cash) or specific securities within that class, while simultaneously buying desired types or securities. Often a firm is asked to bid on an old portfolio and give an offering of the desired portfolio. See: program trading.
Portfolio turnover rate: For an investment company, an annualized rate found by dividing the lesser of purchases and sales by the average of portfolio assets.
Portfolio variance: Weighted sum of the covariance and variances of the assets in a portfolio.
Position: A market commitment; the number of contracts bought or sold for which no offsetting transaction has been entered into. The buyer of a commodity is said to have a long position and the seller of a commodity is said to have a short position. Related: open contracts
Position limits: Applies to derivative products. Maximum position available in any one future or option contract for a given institution, for "bona fide" futures hedgers, there are no "position limits."
Position self: Used in the context of general equities. Going long or short in anticipation of a stock's movement.
Position sheet: Used in the context of general equities. List of long and short positions for an individual trader or desk, at times accompanied by the trades from the previous trading session that brought these closing positions.
Positive carry: Related: net financing cost
Positive convexity: A property of option-free bonds whereby the price appreciation for a large downward change in interest rates will be greater (in absolute terms) than the price depreciation for the same downward change in interest rates.
Positive covenant (of a bond): A bond covenant that specifies certain actions the firm must take. Also called an affirmative covenant.
Position diagram: Diagram showing the possible payoffs from a derivative investment.
Positive float: See: float.
Possessions corporation: A type of corporation permitted under the U.S. tax code whereby a branch operation in a U.S. possessions can obtain tax benefits as though it were operating as a foreign subsidiary.
Post: Particular place on the floor of an exchange where transactions in stocks listed on the exchange occur.
Post-audit: A set of procedures for evaluating a capital budgeting decision after the fact.
Post-money valuation: The pre-investment valuation of the company. Obtained by subtracting the dollar amount of the investment proceeds received by the company from the quotient of the amount of the investment divided by the percentage ownership that such investment purchases.
Postponement option: The option of postponing a project without eliminating the possibility of undertaking it.
Posttrade benchmarks: Prices after the decision to trade.
Pre-money valuation: The pre-investment valuation of the company. Obtained by subtracting the dollar amount of the investment proceeds received by the company from the quotient of the amount of the investment divided by the percentage ownership that such investment purchases.
Preauthorized checks (P.A.C.s): Checks that are authorized by the payer in advance and are written either by the payee or by the payee's bank and then deposited in the payee's bank account.
Preauthorized electronic debits (P.A.D.s): Debits to its bank account in advance by the payer. The payer's bank sends payment to the payee's bank through the Automated Clearing House (A.C.H.) system.
Precautionary demand (for money): The need to meet unexpected or extraordinary contingencies with a buffer stock of cash.
Precautionary motive: A desire to hold cash in order to be able to deal effectively with unexpected events that require cash outlay.
Preemptive right: Common stockholder's right to anything of value distributed by the company.
Preference: Refers to over-the-counter trading. Select a dealer to handle a trade despite his market not being the best available. Often the "preferenced dealer" will then move his market in-line.
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 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.
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.
Preliminary prospectus: A preliminary version of a prospectus.
Premium: (1) for a bond above the par value. (2) The price of an option contract; also, in futures trading, the amount the futures price exceeds the price of the spot commodity. For convertibles, amount by which the price of a convertible exceeds parity, and is usually expressed as a percentage. If a stock is trading at $45 and the bond convertible at $50 is trading at 105, the premium is $15, or 16.66% (15/90). If the premium is high, the bond trades like any fixed income bond, if low, like a stock. See: gross parity, net parity. For futures, excess of fair value of future over the spot index, which in theory will equal the Treasury bill yield for the period to expiration minus the expected dividend yield until the future's expiration. For options, price of an option in the open market (sometimes refers to the portion of the price that exceeds parity). For straight equity, price higher than that of the last sale or inside market. Related: inverted market premium payback period. Also called break-even time, the time it takes to recover the premium per share of a convertible security.
Premium bond: A bond that is selling for more than its par value.
Prepackaged bankruptcy: A bankruptcy in which a debtor and its creditors pre-negotiate a plan of reorganization and then file it along with the bankruptcy petition.
Prepayments: Payments made in excess of scheduled mortgage principal repayments.
Prepayment speed: Also called speed, the estimated rate at which mortgagors pay off their loans ahead of schedule, critical in assessing the value of mortgage pass-through securities.
Prerefunded bond: Refunded bond.
Present value: The amount of cash today that is equivalent in value to a payment, or to a stream of payments, to be received in the future. To determine the present value, each future cash flow is multiplied by a present value factor. For example, if the opportunity cost of funds is 10%, the present value of $100 to be received in one year is $100x(1/1 + .10)=$91.
Present value