5536 - FINS 5536 Chapters 1 and 2 Vocabulary List This...

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FINS 5536 Chapters 1 and 2 Vocabulary List This vocabulary list is a summary of some of the terms introduced in the first two chapters (of Sundaresan’s book). As an exercise, check the definitions of these terms. This will serve as a summary of the two chapters, and also introduce you to many of the topics that will we discuss in this course. These definitions are examinable. Chapter 1 Bullet securities: simple noncallable debt securities with a fixed maturity date and a fixed coupon. Callable securities: the issuer has the right to buy back the debt at a predetermined price. Puttable securities: the debt-holder has the right to sell the debt to the issuer at a prespecified price. Convertible securities: the debt-holder has the right to convert the debt to a prespecified number of shares of common stock of the issuing company. Bid price: the price at which someone is willing to buy a security (i.e., you’re forced to sell at the bid price, which will be low ). Offer (or ask) price: the price at which someone is willing to sell a security (i.e., you’re forced to buy at the ask price, which will be high ). Coupon: the periodic compensation paid to debt-holders (usually paid semi- annually). Time to maturity: the remaining life of the claim. Credit (or default) risk: the risk that the issuer will default on payments. Interest rate risk: the price risk due to fluctuating interest rates. Liquidity risk: for example, a high bid-ask spread indicates high liquidity risk; this occurs if there are relatively few traders, who aren’t willing to trade in large
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This note was uploaded on 04/11/2011 for the course FINS 5536 taught by Professor No during the Three '11 term at University of New South Wales.

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5536 - FINS 5536 Chapters 1 and 2 Vocabulary List This...

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