About Money 101

A.B.C.D.E.F.G.H.I.J.K.L.M.N.O.P.Q.R.S.T.U.V.W.X.Y.Z

P Fifth letter of Nasdaq stock symbol specifying issue is the company's first class of preferred shares. P2P Business slang, usually used in reference to startups or internet startup,refers to "path to profitability.". PA The two-character ISO 3166 country Code for PANAMA. PAB The ISO 4217 currency code for the Panama Balboa. PAC See: Planned amortization class PAC See: Preauthorized checks PAD See: Preauthorized electronic debits PBGC See: Pension Benefit Guaranty Corporation PC See: Participation certificates PE The two-character ISO 3166 country code for PERU. PEFCO See: Private Export Funding Corporation PEG Ratio See: Prospective earnings growth ratio PEN The ISO 4217 currency code for the Peruvian Nuevo Sol. PERC See: Preferred equity redemption stock PERLS Principal Exchange-Rated-Linked Securities. PF The two-character ISO 3166 country code for FRENCH POLYNESIA. PG The two-character ISO 3166 country code for PAPUA NEW GUINEA. PGK The ISO 4217 currency code for the Papua New Guinea Kina. PH The two-character ISO 3166 country code for PHILIPPINES. PHP The ISO 4217 currency code for the Philippines Peso. PHLX See: Philadelphia Stock Exchange PIBOR See: Paris Interbank Offer Rate PIK See: Payment-in-kind bond PK The two-character ISO 3166 country code for PAKISTAN. PKR The ISO 4217 currency code for the Pakistani Rupee. PL The two-character ISO 3166 country code for POLAND. PLC See: Project loan certificate PLN The ISO 4217 currency code for the Polish Zloty. PM The two-character ISO 3166 country code for SAINT PIERRE AND MIQUELON. PN The two-character ISO 3166 country code for PITCAIRN. PN See: Project notes PO See: Principal only PR The two-character ISO 3166 country code for PUERTO RICO. PS The two-character ISO 3166 country code for PALESTINIAN TERRITORY, OCCUPIED. PT The two-character ISO 3166 country code for PORTUGAL. PTE The ISO 4217 currency code for the Portugese Escudo. PVBP See: Price value of a basis point PW The two-character ISO 3166 country code for PALAU. PY The two-character ISO 3166 country code for PARAGUAY. PYG The ISO 4217 currency code for the Paraguay Guarani. PAC Bond Stands for Planned Amortization Class bond. A tranche class offered by some CMOs that has a sinking fund schedule and an ability to make principal payments that are not subordinated to other classes. Pacific Stock Exchange Used for listed equity securities. Regional exchange located in Los Angeles and San Francisco; only U.S. 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. Package mortgage A mortgage on a house and property in the house. 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 Paid up When all payments that are due have been made. Paid-up policy A life insurance policy in which all premiums that are due have been paid. Painting the tape Illegal practice by traders who manipulate the market by buying and selling a security to create the illusion of high trading activity and to attract other traders who may push up the price. 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 MOC orders (especially relating to futures/options expirations). Paired shares Stock of two companies under the same management that are sold as one unit with one certificate. Pairoff A buyback to offset and effectively liquidate a prior sale of securities. Panic buying or selling Rapid trading of stocks or bonds in high volume in anticipation of sharply rising or falling prices, usually after unexpected news is released. Paper Money market instruments, commercial paper, and other. Paper dealer A brokerage firm that buys and sells commercial paper to make a profit. Paper gain (loss) Unrealized capital gain (loss) on securities held in a portfolio based on a comparison of current market price to original cost. Par Equal to the nominal or face value of a security. A bond selling at par is worth an amount equivalent to its original issue value or its value upon redemption at maturity-typically $1000/bond. See: Discount, premium. Par bond A bond trading at its face value. Par value Also called the maturity value or face value; the amount that an issuer agrees to pay at the maturity date. Par value of currency The official exchange rate between two countries' currencies. Parallel bonds Fixed income instruments denominated in the respective currencies of the countries where they are placed. Parallel loan A process whereby two companies in different countries borrow each other's currency for a specific period of time, and repay the other's currency at an agreed maturity for the purpose of reducing foreign exchange risk. Also referred to as back-to-back loans. Parallel shift in the yield curve A shift in economic conditions in which the change in the interest rate on all maturities is the same number of basis points. In other words, if the three month T-bill increases 100 basis points (one %), then the 6-month, 1-year, 5-year, 10-year, 20-year, and 30-year rates all increase by 100 basis points as well. Related: Non-parallel shift in the yield curve. Parameter A model is a combination of variables, such as GDP growth, and coefficients which multiply these variables. The coefficients are often estimated from the data. The coefficients are called parameters. Parent company A company that controls subsidiaries through its ownership of voting stock, as well as runs its own business. Paris Bourse National stock market of France. Paris Interbank Offer Rate (PIBOR) The deposit rate on interbank transactions in the Eurocurrency market quoted in Paris. Parity For convertibles, level at which a convertible security's market price equals the aggregate value of the underlying common stock; value/worth of the convertible bond considered only as an equity instrument (Conversion ratio times common price). See: Conversion value. For international parity, US$ price of a foreign stock's last sale in an overseas market (Local currency stock price times forex rate times ADR 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 Putting money into safe investments such as money market investments while deciding where to invest the money. 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 the stock is to conceal ownership or control of a raider, thus sidestepping the Williams Act requirements of 5% holding limits. See: Rule 13d. Part B prospectus See: Statement of Additional Information Partial Used in the context of general equities. Trade whose size is only part of the total customer indication/order, usually made to avoid a compromise in price and also to get some business instead of losing the customers inquiry/order to a competitor. Partial compensation Incomplete payment for the delivery of goods to one party by buying back a certain amount of product from the same party. Partial Vote When only a portion of the total shares in an account is voted. For example, a broker has 1,000 shares and sends out a card to each of four shareholder clients. If only three of the four client cards are returned to the broker, the broker will submit only 3/4ths(750 shares) of the total 1,000 shares to vote. If the fourth card arrives later, an additional vote can be counted. "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 the broker of investor 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 convertible preferred stock Preferred stock that can be converted into common stock at the option of the holder. In contrast, to the usual preferred stock, the value of the preferred stock is refunded to the holder. That is, one gets conversion plus the value of the stock. Participating dividend Dividend received from ownership of participating preferred stock. Participating fees The portion of total fees in a syndicated credit that go to the participating banks. Participating GIC A guaranteed investment contract whose policyholder is not guaranteed a crediting rate, but instead receives a return based on the actual experience of the portfolio managed by the life insurance company. Participating life insurance policies Life insurance that pays dividends to policyholders depending on the company's success as provided by few claims and profitable underwritings and investments. Participating preferred stock Preferred stock that provides the holder with a specified dividend plus the right to additional earnings under specified conditions. Participation certificates (PC) Used in the context of general equities. Investments 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. Participation loan A large loan made by a group of lenders, that enables a borrower to obtain financing above the legal lending limit of an individual lender. 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 with respect to obligations of the group. See: General partnership, limited partnership, and master limited partnership. Partnership agreement A written agreement among partners detailing the terms and conditions of participation in a business ownership arrangement. Party in interest An ERISA-specified individual—such as an administrator, officer, fiduciary, trustee, custodian, or counsel—who is prohibited from making certain transactions involving a retirement plan. A trustee, for example, would be prohibited from using an IRA as collateral for a loan. Pass the book The process of transferring responsibility for a brokerage firm's trading account from one office to another around the world in order to benefit from trading 24 hours a day. 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 Passive Income or loss from business activities in which a person does not materially participate, such as a limited partnership. Passive Activity Loss (PAL) A loss incurred in participating in passive investing. Passive bond A bond without any interest yield. Passive income Income (such as investment income) that does not come from active participation in a business. Specified by the U.S. tax code. Passive Income Generator (PIG) An investment that favors passive income, such as an income-oriented real estate limited partnership. Passive investing Putting money into a profitable business opportunity that is deemed passive by the IRS and thus benefits from tax deductions. Passive investment management Buying a well diversified portfolio to represent a broad-based market index without attempting to search out mispriced securities. Passive investment strategy See: Passive investment management. Passive management See: Indexing 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. Patent The exclusive right to use documented intellectual property in producing or selling a particular product or using a process for a designated period of time. 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. Pattern A technical chart formation used to make market predictions by following the price movements of securities. Pay-as-you-go basis A method of paying income tax in which the employer deducts a portion of an employee's monthly salary to remit to the IRS. Pay-to-play Attempts by municipal bond underwriting businesses to gain influence with political officials who decide which underwriters are awarded the municipality's business. Pay-up The loss of cash resulting from a swap into higher-priced 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) 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 supportable, price due to its quality. 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. Payable date The date when dividends or capital gains are paid to shareholders or reinvested in additional shares. Payables Related: Accounts payable Payback The length of time it takes to recover the initial cost of a project, without regard to the time value of money. Pay-down In a Treasury refunding, the amount by which the par value of the securities maturing exceeds that of those sold. In the context of general equities, paying a lower price in an accumulation of stock. Antithesis of pay-up. Payee A person receiving payment through any form of money transfer method. Payer The person making a payment to a payee. Paying agent An agent who makes principal and interest payments to bondholders on behalf of the issuer. Payment date The date on which shareholders of record will be sent a check for the declared dividend. Payment float Company-written checks that have not yet cleared. Payment-in-kind (PIK) 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 occur on a bilateral basis (between pairs of affiliates), or on a multi-lateral basis (taking all affiliates together). Payments pattern Describes the collection pattern of receivables. The pattern might describe the probability that a 72-day-old account will still be unpaid when it is 73 days-old. Payments System Collective term for mechanisms (both paper-backed and electronic) for moving funds, payments and money among financial institutions throughout the nation. The Federal Reserve plays a major role in the nation's payments system through distribution of currency and coin, processing of checks, electronic transfer of funds and the operation of automated clearinghouses that transfer funds electronically among depository intitutions; various private organizations also perform payments system functions. Payoff diagram In option pricing, a graph of the value of the option position at expiration as a function of the underlying asset price. Payoff profile The slope of a line graphed according to the value of an underlying asset on the x-axis and the value of a position taken to hedge against risk exposure on the y-axis. Also used with changes in value. See: Risk profile. Payout period The time period during which withdrawals from a retirement account or annuity are paid. Payout ratio Generally, the proportion of earnings paid out to the common stockholders as cash dividends. Morespecifically, the firm's cash dividend divided by the firm's earnings in the same reporting period. P-coast Refers to west coast listed equity securities. See: Pacific Stock Exchange. P/E See: Price/earnings ratio P/E effect That portfolios with low P/E stocks exhibit higher average risk-adjusted returns than those with high P/E stocks. Related: Value manager. P/E ratio Current stock price divided by trailing annual earnings per share or expected annual earnings per share. 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 ten times earnings. Peak The high point at the end of an economic expansion until the start of a contraction. Pecking-order view (of capital structure) The argument that external financing transactions 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, and debt-equity hybrids. Finally, new equity is at the least preferred source. Pegged exchange rate Exchange rate whose value is pegged to another currency's value or to a unit of account. Pegging Making transactions in a security, currency, or commodity in order to stabilize or target its value through market intervention. Penalty clause A clause found in contract agreements that provides for a penalty in the event of default. Penalty tax A federal tax that can be applied if a plan holder does not meet certain requirements when making withdrawals from a tax-advantaged retirement plan (for instance, if the plan holder has not reached age 59-1/2). This penalty tax is owed in addition to any income taxes due. Pennant A chart pattern resembling a pointed flag, with the point facing to the right, which shows a diminishing variance of price. 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 OTC, many of them in the local markets of Denver, Vancouver, or Salt Lake City. Pension Benefit Guaranty Corporation (PBGC) A federal agency that insures the vested benefits of pension plan participants (established in 1974 by the ERISA legislation). Pension fund A fund set up to pay the pension benefits of a company's workers after retirement. Pension liabilities Future liabilities resulting from pension commitments made by a corporation. Accounting for pension liabilities varies widely by country. Pension parachute A form of poison pill providing that in the event of a hostile takeover attempt, any excess pension plan assets can be used to benefit pension plan participants. This prevents the raiding firm from using the pension assets to finance the takeover. In the context of corporate governance, these provisions prevent an acquirer from using surplus cash in the pension fund of the target in order to finance an acquisition. Surplus funds are required to remain the property of the pension fund and to be used for plan participants' benefits. Pension plan A fund that is established for the payment of retirement benefits. Pension reversion Termination of an overfunded defined benefit pension plan and replacement of it with a life insurance company-sponsored fixed annuity plan. Pension sponsors Organizations that have established a pension plan. Penultimate profit prospect (PPP) The second-lowest-priced of the ten highest-yielding stocks in the Dow Jones Industrial Average that is said (by authors O'Higgins and Downes) to be the Dow stock with the best possibility of outperforming the average as a whole. People pill A form of poison pill providing that the entire management threatens to resign in the event of a takeover. Per capita debt The total bonded debt of a municipality divided by the population of the municipality. Per stirpes A method for distributing the assets of an individual who dies without a valid will. The Latin means for each descendant. Percent to double Percentage that the stock price has to rise (fall) to double the price of the call (put). Percentage financial statement Balance sheet and income statement represented as percentages. 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 Applies mainly to convertible securities. Premium over parity of a convertible bond divided by parity. 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. Perfect forecast line Graph of a slope that matches the forecast of an exchange rate with the actual exchange rate. Perfect hedge A situation in which the profit and loss from the underlying asset and the hedge position are equal. Perfect market assumptions Conditions under which the law of one price holds. The assumptions include frictionless markets, rational investors, and equal access to market prices and information. 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. Perfected first lien A first attachment on an asset that is duly recorded with the relevant government body so that the lender will be able to act on it should the borrower default. 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 certain conditions: (1) Trading is costless, and access to the financial markets is free; (2)information about borrowing and lending opportunities is freely available; and (3) there are many traders, and no single trader can have a significant impact on market prices. Performance Accelerated Restricted Stock Award Plans ("PARSAPs") Also known as performance-accelerated restricted stock ("PARS") and time-accelerated restricted stock award plans ("TARSAPs"). Grants of restricted stock or restricted stock units which may vest early upon attainment of specified performance objectives. Otherwise, a time-vesting schedule would remain in effect. 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 questions such as: (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 bond A surety bond between two parties, insuring one party against loss if the terms of a contract are not fulfilled. Performance evaluation The assessment of a manager's results, 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 fund A growth-oriented mutual fund investing in growth stock and performance stock with low dividends and high risk. Performance index A risk-adjusted measure of how well a portfolio has performed. Performance measurement Calculation of the return a money manager realizes 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 shareholders sometimes use to tie management to the self-interest of shareholders. Performance stock High-growth stock in a company that retains earnings for further growth and therefore pays no dividends, but that an investor feels has significant future potential. Period-certain annuity An annuity that provides guaranteed payments to an annuitant for a specified period of time. Period of digestion The time period of often high volatility after a new issue is released when the trading price of the security is established by the market. Periodic call auction Selling stocks by bid at intervals throughout the day. Periodic payment plan Accumulation of capital in a mutual fund by making regular payments on a monthly or quarterly basis. Periodic payments A series of payments from an annuity, qualified retirement plan, or 403(b)(7) account made over a certain term of years. A payment from an IRA, even if over a period of years, is not considered a periodic payment for tax purposes. Periodic purchase deferred contract A fixed or variable annuity contract for which fixed-amount premiums are paid either monthly or quarterly, and that does not begin paying out until a time elected by the annuitant. 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. Permanent Assets Fixed assets (plant and equipment) and permanent current assets. Permanent Current Assets The minimum level of current assets that a firm needs to continue operation. Because some level is always maintained, they are called permanent current assets. Permanent financing Long-term financing using either debt or equity. Permanent spontaneous current Liabilities The minimum level of spontaneous liabilities that is always maintained by a firm. Permissiable nonbank activities Financial activities closely related to banking that may be engaged in by bank holding companies (BHCs), either directly or through nonbank subsidiaries. For example, a BHC might own finance companies or engage in mortgage banking. The Federal Reserve Board determines which activities are closely related to banking. Before making such activities permissible, the Board must determine that performance of the activities by bank holding companies is in the public interest. Perpendicular spread Option strategy involving the purchase of options with similar expiration dates and different exercise prices. Perpetual bond Nonredeemable bond with no maturity date that pays regular interest rates indefinitely. Perpetual inventory Recordkeeping system in which book inventory is updated daily. 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 decoration. Personal article floater Insurance policy attachment designed to cover specified personal valuables. Personal exemption Amount of money a taxpayer can exclude from personal income for each member of the household in calculation of a tax obligation. Personal income Total income received from all sources, including wages, salaries, or rents, and the like. Personal inflation rate The inflation rate as it affects a specific individual. Personal property Any assets other than real estate. 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 of 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. Petrodollars Deposits by countries that receive dollar revenues from the sale of petroleum to other countries; the term commonly refers to OPEC deposits of dollars in the Eurocurrency market. Phantom income Income from a limited partnership that creates taxability without generating cash flow. Phantom Stock Award A type of incentive grant in which the recipient is not issued actual shares of stock on the grant date but receives an account credited with a certain number of hypothetical shares. The value of the account increases over time based on the appreciation of the stock price and the crediting of phantom dividends. Payout may be settled in cash or stock. Phantom stock plan An incentive scheme that awards management bonuses based on increases in the market price of the company's stock. Phase space A graph which shows all possible states of a system. In phase space we plot the value of a variable against possible values of the other variables at the same time. If a system had three descriptive variables, we plot the phase space in three dimensions, with each variable taking one dimension. Philadelphia Board of Trade (PBOT) A subsidiary of the Philadelphia Stock Exchange that trades currency futures. Philadelphia Stock Exchange (PHLX) A securities exchange trading American and European foreign currency options on spot exchange rates. Philippine Stock Exchange Established in 1992 through the merger of the Manila Stock Exchange and the Makati Stock Exchange, the Philippines'only securities market. Phillips Curve A graph that supposedly shows the relationship between inflation and unemployment. It is conjectured that there is a simple trade-off between inflation and unemployment (high inflation and low unemployment, and low inflation and high unemployment). Named after A.W. Phillips. Obviously, the relation between these important macroeconomic variables is more complicated than this simple graph would suggest. For a modern treatment, see work of Robert Lucas. Phone switching Transferring money between funds in the same mutual fund 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. Physical asset Actual property such as precious metals or real estate. Also called real or tangible assets. Physical commodity See: Commodity Physical option An option whose underlying security is a physical commodity that is not stock or futures. The physical commodity itself (a currency, treasury debt issue, commodity) - underlies that option contract. See also index option. Physical verification A procedure auditors use to ensure that inventory recorded in the book is correct by actually checking out the physical inventory. P & I Stands for principal and interest on bonds or mortgage-backed securities. Pickup The gain in yield that occurs when a block of bonds is swapped for another block of higher-coupon bonds. Pickup bond A bond with a relatively high coupon that is close to the date at which it is callable, meaning that a fall in interest rates will most likely cause early redemption of the bond at a premium. Picture Describes bid and asked prices a broker quotes 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 Apply mainly to convertible securities. Increment of bonds that trade in portions of $1000 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 capital markets. Pier A man made structure extending from the shore against which vessels may lie to load or unload cargo. Piggyback registration When a securities underwriter allows existing holdings of shares in a corporation to be sold in combination with an offering of new public shares. Piggybacking A broker who trading stocks, bonds or commodities in a personal account following a trade just made for a customer. The broker assumes that the customer is making the trade on valuable inside information. PIK (Payment-in-kind) securities Highly speculative bonds or preferred stock that pay interest or dividends through additional bonds or preferred stock. Pink sheets Refers to over-the-counter trading. Daily publication of the national quotation bureau that reports the bid and ask prices of thousands of OTC stocks, as well as the market makers who trade each stock. Pip Used for listed equity securities. Smallest unit of a currency (i.e., cents for US dollars). Pipeline The underwriting process that must be completed with the SEC before a security can be offered for sale to the public. 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. PITI Stands for principal, interest, taxes, and insurance, the four main parts of monthly mortgage obligations. 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. P&L Profit and loss statement for a trader. Place The marketing of new securities, usually through sales to institutional investors. See: Float. Placement A bank depositing Eurodollars with (selling Eurodollars to) another bank is often said to be making a placement. Placement ratio The percentages of last week's new municipal bond offerings that have been bought from the underwriters, according to the Bond Buyer newspaper. 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. Plain vanilla swap See: Fixed for floating swap Plan agreement A document detailing the terms and conditions of a retirement plan such as an IRA. Plan participants Employees or other beneficiaries who are eligible to receive benefits from a company's employee benefit plan. 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 (PAC) (1) The class of CMO that has the most stable cash flows and the lowest prepayment risk of any class of CMO Because of a stable cash flow, it is considered the least risky CMO (2) A CMO bond class that stipulates cash flow contributions to a sinking fund. A PAC directs principal payments 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 the trust in excess of the sinking fund requirement are also allocated to other bond classes. The prepayment experience of the PAC is therefore very stable over a wide range of prepayment experience. Planned capital expenditure program Budgeted or projected outlays for major expenditures on permanent or fixed assets as outlined in the corporate financial plan. Planned financing program Budgeted or projected ways need for reasons or to obtain short-term and long-term financing as outlined in the corporate financial plan. Planning horizon The length of time a model or investor or plan projects into the future. Plant The assets of a business including land, buildings, machinery, and all equipment permanently employed. Player Used in the context of general equities. Customer or trader who is actively involved in a particular stock or the market in general. Playing the market Trading in high, uncalculated risk usually refers to actions of amateur investors. Plaza Accord Agreement among country representatives in 1985 to implement a coordinated program to weaken the dollar. Pledging See: Hypothecation Plow back To reinvest earnings in a business rather than pay out them out as dividends. Common practice in high-growth companies. Plowback rate Related: Retention rate Plug A variable that handles financial slack in the financial plan. Plus Used to quote a price in 64ths. 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 own 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 used solely to record changes in price. Point Attractor In non-linear dynamics, an attractor where all orbits in phase space are drawn to one point, or value. Essentially, any system which tends to a stable, single valued equilibrium will have a point attractor. A pendulum which is damped by friction will always stop, so its phase space will always be drawn to the point where velocity and position are equal to zero. See: Attractor, Phase Space. Points quote An abbreviated form of the outright quote used by traders in the interbank market. 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 government agents are said to be instructed to swallow if capture is imminent. Poison put A covenant allowing the bondholder to demand repayment in the event of a hostile takeover. Policy asset allocation Way in which an investor seeks to assess an appropriate long-term "normal" mix of assets that represents an ideal blend of controlled risk and enhanced return. Policy limit The maximum dollar amount of coverage provided by an insurance company for a certain policy. Policy loan A loan often made at a below-market interest rate from an insurance company to a policyholder that is secured by the cash surrender value of a life insurance policy. Policyholder An individual who owns an insurance policy. Policyholder loan bonds Packaged loans acquired by policyholders that are secured by the cash surrender value of the policies, and are offered by a broker/dealer as bonds. Political risk Possibility of negative events such as 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 In capital budgeting, the concept that investment projects are financed out of a pool of bonds, preferred stock, and common stock, and a weighted-average cost of capital must be used to calculate investment returns. In insurance, a group of insurers who share premiums and losses in order to spread risk. In investments, the combination of funds for the benefit of a common project, or a group of investors who use their combined influence to manipulate prices. 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. Porcupine provision Often used in risk arbitrage. See: Shark repellent. Portability The character of benefits that may be carried from a previous job to the next. Portfolio A collection of investments, real and/or financial. Portfolio allocation by region The distribution, by geographic region, of a portfolio's holdings. Portfolio asset allocation The distribution, by type of asset, of a portfolio's holdings. Portfolio beta Used in the context of general equities. The beta of a portfolio is the weighted sum of the individual asset betas, According to the proportions of the investments in the portfolio. E.g., if 50% of the money is in stock A with a beta of 2.00, and 50% of the money is in stock B with a beta of 1.00,the portfolio beta is 1.50. Portfolio beta describes relative volatilityof 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 diversification Investing in different asset classes and in securities of many issuers in an attempt to reduce overall investment risk and to avoid damaging a portfolio's performance by the poor performance of a single security, industry, (or country). Portfolio expected return A weighted average of individual assets' expected returns. 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 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 opportunity set The expected return/standard deviation pairs of all portfolios that can be constructed from a given set of assets. 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 restructuring Applies to derivative products. Recomposition 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 separation theorem Theory that an investor's choice of a risky investment portfolio is separate from his attitude towards risk. Related: Fisher's separation theorem. Portfolio theory See: Modern portfolio theory. Portfolio transaction costs The expenses associated with buying and selling securities, including commissions, purchase and redemption fees, exchange fees, and other miscellaneous costs. In a mutual fund prospectus, these expenses are listed separately from the fund's expense ratio. 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 building Buying shares to build up a long position or selling shares to create a short position in a particular security or group of securities. Position diagram Diagram showing the possible payoffs from a derivative investment. 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. Position trader A commodities trader who takes a long-term approach in maintaining positions in the market and does not close out of these positions until close to the delivery date. Positive carry Related: Net financing cost Positive convexity A property of option-free bonds that 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. Positive float See: Float Positive yield curve When long-term debt interest rates are higher than short-term debt rates (because of the increased risk involved with long-term debt security). Possessions corporation A type of corporation permitted under the US tax code whose branch operation in a US possession 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-dated check A check that becomes payable and negotiable on a future date specified. Postponement option The option of deferring a project without eliminating the possibility of undertaking it. Postponing income Purposely delaying receipt of income to a later year in order to reduce current tax liability. Post-trade benchmarks Prices after the decision to trade. Pot The portion of stock or bond issue that is returned to the managing underwriter by the participating investment bankers for sale to institutional investors. Pot is clean Phrase used when managing underwriter has sold the entire pot. Power of attorney A written authorization allowing a person to perform certain acts on behalf of another, such as moving of assets between accounts or trading for a person's benefit. Prearranged trading Possibly fraudulent practice whereby commodities dealers carry out risk-free trades at predetermined prices to acquire tax advantages. Preauthorized checks (PAC) Checks that are authorized by a payer in advance, and written either by the payee or by the payee's bank and then deposited in the payee's bank account. Preauthorized electronic debits (PAD) Debits to a bank account in advance by the payer. The payer's bank sends payment to the payee's bank through the Automated Clearing House (ACH) system. Preauthorized payment Accelerating cash inflows by directly charging a customer's bank account with permission. Pre Carriage Usually freight charges for port or airport delivery arising before the principal international carriage. 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. Precedence The established system of priorities of trades in an exchange. For example, the highest bid and lowest offer have highest precedence; the first bid or first offer at a price has highest priority, and large orders have priority over smaller orders. Precious metals Gold, silver, platinum, and palladium, which are used for their intrinsic value or for their value in production. These may be traded either in their physical state or by way of futures and options contracts, mining company stocks, bonds, mutual funds, or other instrument. Precompute Method of charging interest in which the annual interest is either deducted from the face amount of the loan when the funds are distributed or is added to the total amount and divided into the regular payments. Preemptive right Common stockholders' right to anything of value distributed by the company. Preference Refers to over-the-counter trading. Selection of a dealer to handle a trade despite the dealer's market not being the best available. Often the "preferenced dealer" will then move his market in line. Preference share Preferred shares of a corporation that have first claim to preferred dividends. 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 dividend coverage Net income after interest and taxes (before common stock dividends) divided by preferred stock dividends. 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. The theory rejects the assertion that the risk premium must rise uniformly with maturity, but instead profits that to the extent that the demand for and supply of funds do not match for a given maturity range, some participants will shift to maturities showing the opposite imbalances, as long as they 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 entitle them to be 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. Preferred stock has characteristics of both common stock and debt. Preferred stock agreement A contract for preferred stock. Preferred stock ratio Preferred stock at par value divided by total capitalization, which gives the portion of capitalization that consists of preferred stock. PREG Financial ratio defined as stock price divided by sales over earnings growth. Often used in the valuation of Internet stocks. Related: PSSG. Preliminary estimate The second estimate of GDP released about two months after the measurement period. Preliminary prospectus An initial or tentative version of a prospectus. Premature distribution A distribution from an IRA before the owner reaches age 59-1/2. Generally, a 10% penalty tax is owed on such a distribution. Also known as an early distribution or an early withdrawal. Premium (1) A bond sold above its par value. (2) The price of an option contract; also, in futures trading, the amount by which the futures price exceeds the price of the spot commodity. (3) For convertibles, amount by which the price of a convertible exceeds parity, and is usually expressed as a percentage. Suppose a stock is trading at $45, and the bond is convertible at a $50 stock price and the convertible bond trading at 105. A similar bond without the conversion feature trades at $90. In this case, the premium is $15, or 16.66%=(105-90)/90. If the premium is high, the bond trades like any fixed income bond; if low, like a stock. See: Gross parity, net parity. (4) 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. (5) For options, price of an option in the open market (sometimes refers to the portion of the price that exceeds parity). (6) 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. Premium income The income received by an investor who sells an option. Premium raid An attempt to acquire a large portion of a company's stock to gain control by offering stockholders a premium over the market value for their shares. 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. Prepaid interest An asset account showing interest that has been paid in advance, which is expensed and charged to the borrower's P & L statement. Prepayment penalty A fee a borrower pays a lender when the borrower repays a loan before its scheduled time of maturity. 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. Prerefunding Procedure of floating a second bond at a lower interest rate in order to pay off the first bond at the first call date and to reduce overall borrowing costs. Presale order An order to purchase part of a new municipal bond issue that is accepted by an underwriting syndicate before an official public offering. 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 $100 x [1/(1 + 0.10)] = $91. Present Value Components Analysis An analytical tool that establishes a base NPV for a project that can then be adjusted for the incremental NPV effect of separate elements of the project's overall potential sales. Present value factor Factor used to calculate an estimate of the present value of an amount to be received in a future period. If the opportunity cost of funds is 10% over next year, the factor is [1/(1 + 0.10)]. Present value of growth opportunities Net present value (NPV) of investments the firm is expected to make in the future. Present Value Index (PVI) The ratio of the NPV of a project to the initial outlay required for it. The index is an efficiency measure for investment decisions under capital rationing. President Highest-ranking officer in a corporation after the chief executive officer. Pre shipment Finance Short term funding for inventory and production costs associated with manufacturing goods being exported. Presidential election cycle theory A theory that stock market trends can be predicted and explained by the four-year presidential election cycle. Pre-sold issue An issue that is sold out before the coupon announcement. Pre-tax contribution Payment to an account made with funds from a worker's paycheck before federal income taxes are deducted. Pretax earnings or profits Net income before federal income taxes are subtracted. Pretax rate of return Gain on a security before taxes. Pre-trade benchmarks Prices occurring before or at the decision to trade. Previous balance method Method of calculating finance charges based on the account balance at the end of the previous month. Price of admission Used in the context of general equities. Cost to become a player in a stock in an inordinately aggressive market (i.e.,locking on one side, size or price concessions); trader becomes aggressive in order to break the domination of customer activity by another dealer. 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 change Increase or decrease in the closing price of a security compared to the previous day's closing price. 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 continuity Minimal price changes due to transactions. Price discovery process The process of determining the prices of assets in the marketplace through the interactions of buyers and sellers. 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 are 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 effect Impact of a change in interest rates on bond prices. Price elasticities The percentage change in quantity divided by a percentage change in the price. Answers the question: How much will the demand for my product decrease if I raise prices by 10%? Price gap A term used when the price of a stock rockets or dives in a direction away from its last price range, such as a stock with a trading range of $10-$12 that closes at $12 and climbs to $14 the next day. Price give Used in the context of general equities. Willingness of a buyer or seller to negotiate on price, within reason, from the price at the last sale or the indicated level. See: Takes price. Price immunization Portfolio protection strategy that focuses on the current market value of assets and liabilities. Price impact costs Related: Market impact costs Price indexes See: Consumer price index and producer price index Price leadership A price charged by the dominant producer that becomes the price adopted by all the other producers. Price momentum Related: Relative strength Price persistence Related: Relative strength Price range The interval between the high and low prices over which a stock has traded over a particular period of time. 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 setting terms for secondary market sale. If the general level of rates rises during the production cycle, the lender may have to sell the originated loans at a discount. 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 classic gold standard allowing disturbances in the price level in one country to 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 into balance. Price spread An options strategy that involves buying and selling two options on the same security with the same expiration month, but with different exercise prices. Price support Government intervention to set an artificially high price through the use of a price floor designed to aid producers. Price takers Individuals who respond to rates and prices by acting as though prices have no influence on them. Price uncertainty Chance that the future price of an asset will change. 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 a bond if the required yield changes by one basis point. Price-volume relationship A relationship espoused by some technical analysts that signals continuing rises or falls in security prices that are related to changes in volume traded. Price-weighted index An index giving a greater influence to higher-valued stocks by weighting all component stocks by their price. Prices (of equity) Price of a share of common stock on the date shown. Highs and lows are based on the highest and lowest intraday trading price. Priced out The market has already incorporated information, such as a low dividend, into the price of a stock. Pricey Term used for an unrealistically low bid price or unrealistically high offer price. Pricing efficiency Also called external efficiency; a market characteristic that prices at all times fully reflect all available information that is relevant to the valuation of securities. Primary dealer Usually refers to the select list of securities firms that are authorized to deal in new issues of government bonds. Primary distribution Sale of a new issue of stock or bonds, as distinguished from a secondary distribution. Primary earnings per (common) share Earnings available for the payment of dividends to common stockholders divided by the number of common shares outstanding. Primary market Where a newly issued security is first offered. All subsequent trading of this security occurs is done in the secondary market. Primary offering Direct/Sale of a firm's newly issued shares by the firm to investors. Primary trend General movement in price data that lasts 4 to 4 1/2 years. PRIME Stands for prescribed right to income and maximum equity, a certificate that entitles the owner to the dividend/income from an underlying security, but not to the capital appreciation of that security. Prime paper The highest-quality, investment-grade debt of corporations as decided by rating agencies such as Moody's. Prime rate The interest rate at which banks lend to their best (prime) customers. More often than not, a bank's most creditworthy customers borrow at rates below the prime rate. Prime rate fund A mutual fund that buys portions of corporate loans from banks and pays the interest to shareholders. 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. Principal-agent relationship Occurs when one person, an agent, acts on the behalf of another person, the principal. Principal amount The face amount of debt; the amount borrowed or lent. Often called principal. Principal Exchange-Rated-Linked Securities (PERLS) A debt instrument with its principal and interest denominated in U.S. dollars, but with principal repayment depending on the exchange rate of the U.S. dollar against a foreign currency. Principal-only (PO) A mortgage-backed security (MBS) whose holder receives only principal cash flows on the underlying mortgage pool. All the principal distribution due from the underlying collateral pool is paid to the registered holder of the stripped MBS on the basis of the current face value of the underlying collateral pool. Principal stockholder A stockholder who owns 10% or more of the voting stock of a company. Such stockholders must report all trading in the stock to the SEC pursuant insider trading rules. Principle of diversification That portfolios of different sorts of assets differently correlated with one another will have negligible unsystematic risk. In other words, unsystematic risks disappear in diversified portfolios, and only systematic risks persist, those related to particular assets. Print Used in the context of general equities. As a verb execute a trade, evidenced by its printing on the ticker tape. As a noun, a trade. Prior-lien bond A bond usually arising from reorganization with precedence over another bond of the same issuing company that is equally secured. Prior-preferred stock Preferred stock that has a higher claim on all dividends and assets in liquidation than claims of other preferred stock. Priority Used for listed equity securities. System used in an auction market, in which the first bid or offer price is executed before other bid and offer prices, even if subsequent orders are larger. NYSE rules stipulate that the bid made first should be executed first, or if two bids came in at once, the bid for the large number of shares receives "priority." The bid not executed is then turned to the broker, who informs the customer that the trade was not completed because there was stock ahead. See: Standing. Private Export Funding Corporation (PEFCO) Company that mobilizes private capital for financing the export of big-ticket items by US firms by purchasing at fixed interest rates the medium- to long-term debt obligations of importers of US products. Private-label pass-throughs Related: Conventional pass-throughs. Private letter ruling A ruling by the IRS in response to a request for interpretation of a tax law. Private limited partnership A limited partnership with no more than 35 participants that is not registered with the SEC. Private market value (PMV) The break-up market value of all divisions of a company if divisions were each independent and established their own market stock prices. Private Mortgage Insurance (PMI) Policy protecting the holder against loss resulting from default on a mortgage loan. Private placement The sale of a bond or other security directly to a limited number of investors. For example, sale of stocks, bonds, or other investments directly to an institutional investor like an insurance company, avoiding the need for SEC registration if the securities are purchased for investment as opposed to resale. Antithesis of public offering. Private-purpose bond A municipal bond allowing more than 10% of the proceeds go to private activities. Private unrequited transfers Resident immigrant workers' remittances to their country of origin as well as, e.g., gifts, dowries, inheritances, prizes, charitable contributions. Privatization The transfer of government-owned or government-run companies to the private sector, usually by selling them. Pro forma capital structure analysis A method of analyzing the impact of alternative possible capital structure choices on a firm's credit statistics and reported financial results, especially to determine whether the firm will be able to use projected tax shield benefits fully. Pro forma financial statements A firm's financial statements as adjusted to reflect a projected or planned transaction. "What-if" analysis. Pro forma statement A financial statement showing the forecast or projected operating results and balance sheet, as in pro forma income statements, balance sheets, and statements of cash flows. Probability The relative likelihood of a particular outcome among all possible outcomes. Probability density function The function that describes the change of certain realizations for a continuous random variable. Probability distribution A function that describes all the values a random variable can take and the probability associated with each. Also called a probability function. Probability function A measure that assigns a likelihood of occurrence to each and every possible outcome. Proceeds Money received by the seller of an asset. Proceeds sale OTC securities sale whose revenue is used to buy another security. Processing Delay Time a selling firm takes to record receipt of a payment and deposit it. Producer Price Index (PPI) Index measuring changes in wholesale prices, published by the US Bureau of Labor Statistics every month. Product cycle The time it takes to bring new and/or improved products to market. Product cycle theory Theory suggesting that a firm initially establish itself locally and expand into foreign markets in response to foreign demand for its product; over time, the MNC will grow in foreign markets; after some point, its foreign business may decline unless it can differentiate its product from competitors. Product Differentiation A source of competitive advantage that depends on producing some item that is regarded to have unique and valuable characteristics. Product risk A type of mortgage pipeline risk that occurs when a lender has an unusual loan in production or inventory but does not have a sale commitment at a prearranged price. Production Cost Advantage A source of competitive advantage that depends on producing some product or service at the lowest cost. Production-flow commitment An agreement by the loan purchaser to allow a monthly loan quota to be delivered in batches. Production payment financing A method of nonrecourse asset-based financing in which a specified percentage of revenue realized from the sale of the project's output is used to pay debt service. Production possibilities schedule The maximum amount of goods (i.e., food and clothing) that a country is able to produce given its labor supply. Production rate The coupon rate at which a pass-through security guaranteed by Ginnie Mae is issued. Productivity The amount of output per unit of input, such as the quantity of a product produced per hour of capital employed. Profile buyer/seller Trader trying to get involved in a stock who presents self as a buyer/seller to draw a call from a customer. That is the trader has nothing real, or natural. Profit Revenue minus cost. The amount one makes on a transaction. Profit center A division of an organization held responsible for producing its own profits. Profit forecast A prediction of future profits of a company, which may affect investment decisions. Profit Graph A graphical representation of the potential outcomes of a strategy. Dollars of profit or loss are graphed on the vertical axis, and various stock prices are graphed on the horizontal axis. Results may be depicted at any point in time, although the graph usually depicts the results at expiration of the options involved in the strategy. Profit margin Indicator of profitability. The ratio of earnings available to stockholders to net sales. Determined by dividing net income by revenue for the same 12-month period. Result is shown as a percentage. Also known as net profit margin. Profit Range The range within which a particular position makes a profit. Generally used in refernce to strategies that have two break-even points - an upside break-even and a downside break-even. The price range between the two break-even points would be the profit range. Profit-sharing plan An incentive system providing that employees share in company profits through a cash fund or a deferred plan used to buy stock or bonds. Profit Table A table of results of a particular strategy at some point in time. This is usually a tabular compilation of the data drawn on a profit graph. See also Profit Graph. Profit taking Action by short-term securities traders to cash in on gains created by a sharp market rise, which pushes prices down temporarily but implies an upward market trend. See: Ring the [cash] register. Profitability index The present value of the future cash flows divided by the initial investment. Also called the benefit-cost ratio. Profitability ratios Ratios that focus on how well a firm is performing. Profit margins measure performance with relation to sales. Rate of return ratios measure performance relative to some measure of size of the investment. Proforma Invoice A quotation in the form of a ninvoice prepared by the seller that details items which would appear on a commercial invoice if an order results. Program trades Orders requiring the execution of trades in a large number of different stocks at as near the same time as possible. Also called basket trades. Related: Block trade Program trading Trades based on signals from computer programs, usually entered directly from the trader's computer in to the market's computer system and executed automatically. Applies to derivative products. A process of electronic execution of trading of a basket of stocks simultaneously, for index arbitrage, portfolio restructuring, or outright buy/sell interests. See: super dot. Progress payments Periodic payments to a supplier, contractor, or subcontractor for work as it is completed as desired, in order to reduce working capital requirements. Progress review A periodic review of a capital investment project to evaluate its continued economic viability. Progressive tax system A tax system that taxes the wealthy at a higher percentage rate than the less wealthy. Progressive taxation Characterizes a convex tax schedule that results in a higher effective tax rate on higher income levels. Increases for some increases in income, but never decreases with an increase in income. Project Finance Loan Program Program under which banks, the Ex-Im Bank, or a combination of both may extend long-term financing for capital equipment and related services for major projects. Project financing A form of asset-based financing in which a firm finances a discrete set of assets on a stand-alone basis. Project link An econometric model forecasting and describing the effects of changes in different economies on other economies. Project loan certificate (PLC) A primary program of Ginnie Mae for securitizing FHA-insured and coinsured multifamily, hospital, and nursing home loans. Project loans Usually FHA-insured and HUD-guaranteed mortgages on multiple-family housing complexes, nursing homes, hospitals, and other special development. Project loan securities Securities backed by a variety of FHA-insured loans-primarily multifamily apartment buildings, hospitals, and nursing homes. Project notes (PN) Notes issued by municipalities to finance federally sponsored programs in urban renewal and housing and guaranteed by the U.S. Department of Housing and Urban Development. Projected benefit obligation (PBO) A measure of a pension plan's liability at the calculation date assuming that the plan is ongoing and will not terminate in the foreseeable future. Related: Accumulated benefit obligation. Projected maturity date With CMOs, the date at the end of the estimated cash flow window where final payment is made. Projection The use of econometric models to forecast the future performance of a company, country, or other financial entity using historical and current information. Promissory note Written pledge to pay. Property inventory A list of personal property with corresponding values and initial costs often used to substantiate insurance claim and tax losses. Property rights Rights of individuals and companies to own and use property as they see fit and to receive the stream of income that their property generates. Property tax A tax levied on real property based on its use and its assessed value. Proportional representation A method of stockholder voting that allows minority shareholders and groups of small shareholders to have a better chance of getting representation on a board of directors than under statutory voting. Proprietary trading Principal trading in which firm seeks direct gain rather than commission dollars. Proprietorship An unincorporated business that is owned and operated by only one person who has complete liability for all assets, and complete rights to all profits. Prospective Earnings Growth (PEG Ratio) Based on forecasts from proprietary sources such as Institutional Brokers' Estimate System (IBES), First Call, or Zach's. Growth is forecast of earnings minus current earnings divided by current earnings. Forward-looking measure rather than typical earnings growth measures, which look back in time (historical). Prospectus Formal written document to sell securities that describes the plan for a proposed business enterprise, or the facts concerning an existing one, that an investor needs to make an informed decision. Prospectuses are used by mutual funds to describe fund objectives, risks, and other essential information. Protect Assure the salesperson or trader that interest, buy or sell, will be attended to, given any change in the trading circumstances, as follows: At a price: If the stock trades at a certain price or price range, the trader will show this market to the salesperson and thus allow participation under these favorable circumstances. Floor protection: Representation of a client on the floor of the exchange-so that if size were to trade at his price or a better price, salesperson would participate. Volume (OTC): If a certain amount of volume trades (that parallels the protectee's interest), trader assures salesperson of reasonable participation in the trading activity. The extent of this protection depends on liquidity, number of market makers, and other aspects of the stock. Protected Strategy A position that has limited risk. A protected short sale (short stock, long call) has limited risk, as does a protected straddle write (short straddle, long out-of-the-money combination). See also Combination and Straddle. Protectionism Notion that governments should protect domestic industry from import competition by means of tariffs, quotas, and other trade barriers. Protective covenant A part of an indenture or loan agreement that limits certain actions a company may take during the term of the loan to protect the lender's interests. Protective put buying strategy A strategy that involves buying a put option on the underlying security that is held in a portfolio. Related: Hedge option strategies. Protest Instructions given to a collecting bank that drafts falling due for payment are to be formally presented to the drawee by a notary, who is to formally record any default. Prototype plan A qualified retirement plan sponsored by a financial institution. It may be adopted by executing a written agreement. A prototype is generally more flexible than the IRS Form 5305 or 5305-A and may have additional special features. Also called a master pension plan. Provision for income taxes An amount on the P & I statement that estimates a company's total income tax liability for the year. Provisional call feature A stipulation in a convertible issue that allows the issuer to call the issue during the noncall period if the price of the stock reaches a certain level. In the case of convertible securities, right of an issuer to accelerate the first redemption date if the underlying common should trade at or above a certain level for a sustained period. Most typical terms are 150% of conversion price for 20 consecutive days. Note that under these circumstances the security has appreciated, at a minimum, 50% since being issued. Proxy Authorization, whether written or electronic, that shareholders' votes may be cast by others. Shareholders can and often do give management their proxies, delegating the right and responsibility to vote their shares as specified. Proxy Committee A group of individuals appointed by the board of directors of the company to formally represent the shareholders who send in proxy cards, to vote the represented shares in accordance with the shareholders' instructions. Proxy Committee Ballot The ballot signed and submitted at the meeting by the Proxy Committee. It is the legal voting of shares represented by proxies assigned to the Proxy Committee and should always be completed. Proxy contest A battle for the control of a firm in which a dissident group seeks, from the firm's other shareholders, the right to vote those shareholders' shares in favor of the dissident group's slate of directors. Also called proxy fights. Proxy fight Often used in risk arbitrage. Technique used by an acquiring company to attempt to gain control of a takeover target. The acquirer tries to persuade the shareholders of the target company that the present management of the firm should be ousted n favor of a slate of directors favorable to the acquirer, thus enabling the acquiring company to gain control of the company without paying a premium price. Proxy Fight Competition of outside group with management for stockholders' proxies in order to accumulate votes to elect a new board of directors. Proxy Solicitor A specialist (firm) hired to gather proxy votes. Proxy statement Document intended to provide shareholders with information necessary to vote in an informed manner on matters to be brought up at a stockholders' meeting. Includes information on closely held shares. Information required by the SEC that must be provided to shareholders who wish to vote for directors and on other company decisions by proxy. Proxy vote Vote cast by one person or entity on behalf of another. Prudent-man rule A common law standard against which those investing the money of others fiduciaries) are judged. 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 any previously established positions. PSA Prepayment Rate The Bond Market Trade Association's Mortgaged Asset-Backed Securities Division's 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. 00% PSA assumes a prepayment rate of 2% per month in the first month following the date of issue, increasing at 2% percentage points per month thereafter until the 30th month. Thereafter, 100% PSA is the same as 6% CPR (Constant prepayment rate). PSSG Financial ratio defined as stock price divided by sales over sales growth. Often used in the valuation of Internet stocks. Related: PREG. Public Book (of order) The orders to buy or sell, entered by the public, that are generally away from the current market. The order book official or specialist keeps the public book. Market-Makers on the CBOE can see the highest bid and lowest offer at any time. The specialist's book is closed (only he knows at what price and in what quantity the nearest public orders are). See also Market-Maker and Specialist. Public Company A company that has held an initial public offering and whose shares are traded on a stock exchange or in the over-the-counter market. Public companies are subject to periodic filing and other obligations under the federal securities laws. Public debt Issues of debt by governments to compensate for a lack of tax revenues. Public housing authority bond Bonds of local public housing agencies that are secured by the federal government and whose proceeds are used to provide low-rent housing. Public limited partnership A limited partnership with an unlimited number of partners that is registered with the SEC and is available for public trading by broker/dealers. Public offering Used in the context of general equities. Offering to the investment public, after compliance with registration requirements of the SEC, usually by an investment banker or a syndicate made up of several investment bankers, at a price agreed upon between the issuer and the investment bankers. Antithesis of private placement. See: Primary distribution and secondary distribution. Public offering price The price of a new issue of securities at the time that the issue is offered to the public. Public ownership The portion of a company's stock that is held by the public. Public-purpose bond A specific type of municipal bond used to finance public projects such as roads or government buildings. Interest on municipal bonds is federal income tax-free. Public Securities Administration (PSA) The trade association for primary dealers in US government securities, including MBSs. Public securities offering A securities issue placed with the public through an investment or commercial bank. The Public Individual investors who trade single securities independently or invest in intermediaries such as mutual funds, as opposed to professional investors. Public Utility Holding Company Act of 1935 Legislation intended to eliminate many holding company abuses by reorganizing the financial structures of holding companies in the gas and electric utility industries and regulating their debt and dividend policies. Public warehouse Storage facility operated by an independent warehouse company on its own premises. Publicly held Describes a company whose stock is held by the public, whether individuals or business entities. Publicly traded assets Assets that can be traded in a public market, such as the stock market. Puke Slang for a trader selling aposition, usually a losing position, as in, "When in doubt, puke it out." Pull Used in the context of general equities. See: Cancel. Pullback The downward reversal of a prolonged upward price trend. Pulling in their horns Investors selling off positions after a stock or bond market has increased sharply or setting up hedging positions to guard against a negative turn of the market. Purchase Buy; be long; have an ownership position. Purchase accounting Method of accounting for a merger that treats the acquirer as having purchased the assets and assumed the liabilities of the acquiree, which are then written up or down to their respective fair market values. The difference between the purchase price and the net assets acquired is attributed to goodwill. Purchase agreement Used in connection with project financing; an agreement to purchase a specific amount of project output per period. Purchase fee A charge assessed by an intermediary, such as a broker-dealer or a bank, for assisting in the sale or purchase of a security. Purchase fund Resembles a sinking fund, except that money is used to purchase bonds only if they are selling below their par value. Purchase group See: Underwriting syndicate Purchase loan A consumer loan taken to finance a purchase. Purchase method Accounting for an acquisition using market value for the consolidation of the two entities' net assets on the balance sheet. Generally, depreciation/amortization will increase for this method (due to the creation of goodwill) compared to the pooling method resulting in lower net income. Purchase-money mortgage A mortgage given by a buyer in lieu of cash when the buyer is unable to borrow commercially for the purchase of property. Purchase order A written order to buy specified goods at a stipulated price. Purchase and sale A method of securities distribution in which a firm purchases securities from the issuer for its own account at a stated price and then resells them, as contrasted with a best-efforts sale. Purchasing power The amount of credit available for securities trading in a margin account, after taking margin requirements into consideration. Purchasing power of the dollar The amount of goods and services that can be exchanged for a dollar as compared with amount of a previous time period. Purchasing power parity The notion that the ratio between domestic and foreign price levels should equal the equilibrium exchange rate between domestic and foreign currencies. Purchasing power risk Related: Inflation risk Pure discount bond A bond that will make only one payment of principal and interest. Also called a zero-coupon bond or a single-payment bond. Pure expectations theory A theory that asserts that forward rates exclusively represent the expected future rates. In other words, the entire term structure reflects the market's expectations of future short-term rates. For example, an increasing slope to the term structure implies increasing short-term interest rates. Related: Biased expectations heories. Pure index fund A portfolio that is managed so as to perfectly replicate the performance of the market portfolio. Pure monopoly A market in which only one firm has total control over the entire market for a product due to some sort of barrier to entry for other firms, often a patent held by the controlling firm. Pure play A company involved in only one line of business. Pure yield pickup swap Moving to higher yield-bonds. Purpose credit Credit used for the purpose of buying, carrying or trading in securities. Purpose loan A loan that is backed by securities and that is used to buy other securities under certain government regulations. Purpose statement A form filed by a borrower that describes the use of a loan backed by securities, and guarantees that the funds lent will not be used illegally to buy securities against Federal Reserve regulations. Put An option granting the right to sell the underlying futures contract. Opposite of a call. Put bond A bond that the holder may choose either to exchange for par value at some date or to extend for a given number of years. If the price is above par, the put is a "premium put." Put-call parity Applies to derivative products. Option pricing principle that says, given a stock's price, a put and call of the same class must have a static price relationship because arbitrage opportunities or activities will always reestablish such a relationship. Put-call parity relationship The relationship between the price of a put and the price of a call on the same underlying security with the same expiration date, which prevents arbitrage opportunities. Holding the underlying stock and buying a put will deliver the exact payoff as buying one call and investing the present value (PV) of the exercise price. The call value equals C = S + P - PV(k). Put-call ratio The ratio of the volume of put options traded to the volume of call options traded, which is used as an indicator of investor sentiment (bullish or bearish). Put guarantee letter A bank's letter certifying that the person writing a put option has sufficient funds in an account to cover the exercise price if required. Put on Used for listed equity securities. Trade, or cross, a block of stock at the designated price and quantity. See: Print. "Put it on " Used for listed equity securities. "Go to the floor to transact." See: Print. Put option This security gives investors the right to sell (or put) a fixed number of shares at a fixed price within a given period. An investor, for example, might wish to have the right to sell shares of a stock at a certain price by a certain time in order to protect, or hedge, an existing investment. Put an option To exercise a put option. "Put pants on it " Used in the context of general equities. "Elaborate on your intentions or your inquiry," especially with respect to size, side, and price. See: Open up. Put price The price at which an asset will be sold if a put option is exercised. Also called the strike or exercise price of a put option. Put provision Gives the holder of a floating-rate bond the right to redeem the note at par on the coupon payment date. Put ratio backspread A complex options strategy adopted when one believes a stock price will decline but wants to protect against it rising. Put to seller Exercise a put option; require that the option writer to purchase the stock at the strike price. Put swaption A financial instrument giving the buyer the right, or option, to enter into a swap as a floating-rate payer. The writer of the swaption therefore becomes the floating-rate receiver/fixed-rate payer. Put up See: Print Pyramid scheme An illegal, fraudulent scheme in which a con artist convinces victims to invest by promising an extraordinary return but instead simply uses newly invested funds to pay off any investors who insist on terminating their investment. Pyramiding A type of stock swap option exercise in which a small number of previously-owned shares is surrendered to the company to pay a portion of the exercise price, for which a slightly larger number of option shares may be purchased, which are then immediately surrendered back to the company to pay additional amounts of the exercise price, and so on until the full option price has been paid and the optionee is left with just the number of shares equal to the option spread. With the advent of broker-assisted "Cashless Exercise/Same Day Sale" programs (see above), pyramiding has fallen out of favor.

Glossary created by Campbell R. Harvey, Professor of Finance,
Fuqua School of Business at Duke University