A technique used to estimate the probability of portfolio losses based on the statistical analysis of historical price trends and volatilities. Taobiz explains Value at Risk - VaR VaR is commonly used by banks, security firms and companies that are involved in trading energy and other commodities. VaR is able to measure risk while it happens and is an important consideration when firms make trading or hedging decisions.
The risk of experiencing an adverse shift in market interest rates associated with investing in a fixed income instrument. The risk is associated with either a flattening or steepening of the yield curve, which is a result of changing yields among comparable bonds with different maturities. When market yields change, this will impact the price of a fixed-income instrument. When market interest rates, or yields, increase, the price of a bond will decrease and vice versa. |||When the yield curve shifts, the price of the bond, which was initially priced based on the initial yield curve, will change in price. If the yield curve flattens, then the yield spread between long- and short-term interest rates narrows, and the price of the bond will change accordingly. If the bond is a short-term bond maturing in three years and the three-year yield decreases, the price of this bond will increase. If the yield curve steepens, this means that the spread between long- and short-term interest rates increases. Therefore, long-term bond prices will decrease relative to short-term bonds. Changes in the yield curve are based on bond risk premiums and expectations of future interest rates.
A form of fundamental analysis that looks to compare the valuation of one security to another, to a group of securities or within its own historical context. Valuation analysis is done to evaluate the potential merits of an investment or to objectively assess the value of a business or asset. Valuation analysis is one of the core duties of a fundamental investor, as valuations (along with cash flows) are typically the most important drivers of asset prices over the long term. Taobiz explains Valuation Analysis Valuation analysis should answer the simple, yet vital, question of, "What is something worth?" The analysis is then based on either current projections or projections of the future. While investors can agree on a metric like the current price-to-earnings ratio (P/E ratio), how to interpret a given valuation can and will differ among those same investors. Many types of valuation methods are used, involving several sets of metrics. For equities, the most common valuation metric to use is the P/E ratio, although other valuation metrics include: Price/Earnings, Price/Book Value, Price/Sales, Enterprise Value/EBIDTA, Economic Value Added and Discounted Cash Flow.
The illegal practice of underwriters marking up the prices on bonds for the purpose of reducing the yield on the bond. This practice, referred to as "burning the yield," is done after the bond is placed in escrow for an investor who is awaiting repayment. |||Yield burning is attempted in order to reduce the amount of tax that is incurred on fixed-income investments. However, this practice violates federal tax laws. It is not legally possible for an investor to earn a given yield on a fixed-income investment and use yield-burning activities to evade the full extent of the tax obligations incurred on that investment.
A cost that changes in proportion to a change in a company's activity or business. Taobiz explains Variable Cost A good example of variable cost is the fuel for an airline. This cost changes with the number of flights and how long the trips are.
A class of ETFs offered by Vanguard and traded like any other share on the American Stock Exchange. There are presently 27 Vanguard ETFs with underlying indexes covering both individual sectors (such as materials and energy)as well as domestic and international indexes. Previously known as VIPERS, the ETFs are designed to track their underlying indexes as closely as possible and offer the increased flexibility of intraday trading. Taobiz explains Vanguard Exchange-Traded Funds Vanguard looks to bring its leadership in the passive management market to the ETF space with this class of low-cost funds. Most of the underlying indexes are Morgan Stanley (MSCI) indexes, which cover not only equity sectors of the economy, but also small-, mid- and large-cap equity indexes. There are also ETFs for broad-based market indexes such as the Wilshire Composite (a unit of Dow Jones), which tracks more than 3,500 stocks.
The yield of a bond or note if you were to buy and hold the security until the call date. This yield is valid only if the security is called prior to maturity. The calculation of yield to call is based on the coupon rate, the length of time to the call date and the market price. |||Generally speaking, bonds are callable over several years and are normally called at a slight premium.
A stock that has experienced a large price depreciation and is mistaken to be a value stock. Taobiz explains Value Trap When a company's stock seems undervalued, investors are sometimes drawn into purchasing it in hopes of a stock price appreciation. If stock price is the only factor an investor looks at before buying a stock, he or she could end up with a stock whose value is likely to decline even further.
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