An investment-transaction classification that refers to the withdrawal of a portion of a security's value by the owner. Rather than withdrawing the entire amount of his or her security's value from the account, an investor may prefer to keep a portion of the value invested in the asset while still obtaining some cash. |||For example, a partial redemption occurs if an investor orders the withdrawal of a portion of Treasury notes held in an account. The account owner would specify the proportion of the asset he or she would like to withdraw; the amount withdrawn includes a portion of the asset's principal and interest earned.
A graph of the yields on hypothetical Treasury securities with prices at par. On the par yield curve, the coupon rate will equal the yield-to-maturity of the security, which is why the Treasury bond will trade at par. |||Deriving a par yield curve is a step toward creating a theoretical spot rate yield curve, which is then used to more accurately price a coupon-paying bond. A method know as bootstrapping is used to derive the arbitrage-free forward interest rates.
A firm that specializes in buying commercial paper from companies and then selling/marketing it to investors. |||When companies issue commercial paper they can either sell it directly to buyers or sell the issue to a "paper dealer" who then resells it to investors for a profit.
The debt of a political entity, such as a state where its tax base overlaps the tax base of another political entity, such as a city within the state. |||If the issuer of a municipal bond has overlapping debt, it should be considered.
A short-term paper on which the rate is denominated and paid in a base currency. However, the rate movement is based on the exchange rate with an alternate currency. |||This is a commercial-paper variation of the currency coupon swap.
An asset that is transferred to a lender for the purpose of securing debt. The lender of the debt maintains possession of the pledged asset, but does not have ownership unless default occurs. |||A pledged asset is returned to the borrower when all conditions of the debt have be satisfied. Home buyers can sometimes pledge assets, such as securities, to lending institutions in order to reduce the necessary down payment. Thus, these securities would not have to be sold in order to meet the down-payment requirements, allowing for any capital appreciation while maintaining the associate mortgage benefits.
A class of tranche in a planned amortization class (PAC) bond that receives a primary payment schedule. As long as the actual prepayment rate is between a designated range of prepayment speeds, the life of the PAC tranche will remain relatively stable. This tranche of the PAC bond receives some measure of protection against prepayment risk. |||The measure of prepayment risk protection, which includes both contraction and extension risk, is limited by the size of the companion bond and the speed of prepayment. If the speed of repayment is too slow (below the lower PAC collar), the life of the PAC tranche is extended; if the speed of repayment is too fast (above of the upper PAC collar), the life of the PAC tranche is shortened.
The most basic type of forward claim that is traded in the over-the-counter market between two private parties, usually firms or financial institutions. There are several types of plain vanilla swaps, such as the plain vanilla interest rate swap, the plain vanilla commodity swap and the plain vanilla foreign currency swap. |||In a plain vanilla interest rate swap, Company A and Company B choose a time frame, a principal amount, a single currency, a fixed interest rate, a floating interest rate and payment dates. On the specified payment dates for the duration of the time frame, Company A pays Company B a fixed rate of interest on the principal amount, and Company B pays Company A a floating interest rate on the principal amount. All payments are made in the same currency and only the net sum of each payment exchanges hands. The purpose of such an exchange might be to reduce interest-rate risk.
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