Copy of `New York Times - Business and Finance Glossary`

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New York Times - Business and Finance Glossary Category: Economy and Finance Date & country: 11/09/2007, USA Words: 2680

Perfect hedge
A financial result in which the profit and loss from the underlying asset and the hedge position are equal.

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.

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.

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 trust
An interest in an asset held by a trustee for the benefit of another person.

Philadelphia Stock Exchange (PHLX)
A securities exchange where American and European foreign currency options on spot exchange rates are traded.

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.

PIBOR (Paris Interbank Offer Rate)
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.

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 capital markets.

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.

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.

Planned amortization class CMO
(1) One class of CMO that carries the most stable cash flows and the lowest prepayement risk of any class of CMO. Because of that stable cash flow, it is considered the least risky CMO. (2) A CMO bond class that stipulates cash-flow contributions to a sinking fund. With the PAC, 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 CMO classes. Similarly, cash flows received by …

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.

Planning horizon
The length of time a model projects into the future.

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.

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
Anit-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) MBSs.

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.

Portfolio
A collection of investments, real and/or financial.

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 management
Related: Investment management

Portfolio manager
Related: Investment manager

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 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 diagram
Diagram showing the possible payoffs from a derivative investment.

Positive carry
Related:net financing cost

Positive convexity
A property of option-free bonds whereby the price appreciation for a large upward 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 and affirmative covenant.

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.

Postponement option
The option of postponing a project without eliminating the possibility of undertaking it.

Posttrade benchmarks
Prices after the decision to trade.

Pre-trade benchmarks
Prices occurring before or at the decision to trade.

Preauthorized checks (PACs)
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.

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 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 premi…

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) Amount paid 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. 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 or reorganization and then file it along with the bankruptcy petition.

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.

Prepayments
Payments made in excess of scheduled mortgage principal repayments.

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.

Present value factor
Factor used to calculate an estimate of the present value of an amount to be received in a future period.

Presold issue
An issue that is sold out before the coupon announcement.

Price compression
The limitation of the price appreciation potential for a callable bond in a declining interest rate environment, based on the expectation that the bond will be redeemed at the call price.

Price discovery process
The process of determining the prices of the assets in the marketplace through the interactions of buyers and sellers.

Price elasticities
The percentage change in the quantity divided by the percentage change in the price.

Price impact costs
Related: market impact costs

Price momentum
Related: Relative strength

Price persistence
Related: Relative strength

Price risk
The risk that the value of a security (or a portfolio) will decline in the future. Or, a type of mortgage-pipeline risk created in the production segment when loan terms are set for the borrower in advance of terms being set for secondary market sale. If the general level of rates rises during the production cycle, the lender may have to sell his originated loans at a discount.

Price takers
Individuals who respond to rates and prices by acting as though they have no influence on them.

Price value of a basis point (PVBP)
Also called the dollar value of a basis point, a measure of the change in the price of the bond if the required yield changes by one basis point.

Price-book ratio
Compares a stock's market value to the value of total assets less total liabilities (book value). Determined by dividing current stock price by common stockholder equity per share (book value), adjusted for stock splits. Also called Market-to-Book.

Price-earnings ratio
Shows the 'multiple' of earnings at which a stock sells. Determined by dividing current stock price by current earnings per share (adjusted for stock splits). Earnings per share for the P/E ratio is determined by dividing earnings for past 12 months by the number of common shares outstanding. Higher 'multiple' means investors have higher expectations for future growth, and have bid up the stock's price.

Price-sales ratio
Determined by dividing current stock price by revenue per share (adjusted for stock splits). Revenue per share for the P/S ratio is determined by dividing revenue for past 12 months by number of shares outstanding.

Price-specie-flow mechanism
Adjustment mechanism under the classical gold standard whereby disturbances in the price level in one country would be wholly or partly offset by a countervailing flow of specie (gold coins) that would act to equalize prices across countries and automatically bring international payments back in balance.

Price-volume relationship
A relationship espoused by some technical analysts that signals continuing rises and falls in security prices based on accompanying changes in volume traded.

Priced out
The market has already incorporated information, such as a low dividend, into the price of a stock.

Prices
Price of a share of common stock on the date shown. Highs and lows are based on the highest and lowest intraday trading price.

Pricing efficiency
Also called external efficiency, a market characteristic where prices at all times fully reflect all available information that is relevant to the valuation of securities.

Primary market
The first buyer of a newly issued security buys that security in the primary market. All subsequent trading of those securities is done in the secondary market.

Primary offering
A firm selling some of its own newly issued shares to investors.

Prime rate
The interest rate at which banks lend to their best (prime) customers. Much more often than not, a bank's most creditworthy customers borrow at rates below the prime rate.

Primitive security
An instrument such as a stock or bond for which payments depend only on the financial status of the issuer.

Principal
(1) The total amount of money being borrowed or lent. (2) The party affected by agent decisions in a principal-agent relationship.