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

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

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

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

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

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

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

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

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

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

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

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

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

Principal of diversification Highly diversified portfolios will have negligible unsystematic risk. In other
words, unsystematic risks disappear in portfolios, and only systematic risks survive.

Principal-agent relationship A situation that can be modeled as one person, an agent, who 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 only (PO) A mortgage-backed security in which the holder receives only principal cash flows on
the underlying mortgage pool. The principal-only portion of a stripped MBS. For PO securities, all of the
principal distribution due from the underlying collateral pool is paid to the registered holder of the stripped
MBS based on the current face value of the underlying collateral pool.

Private Export Funding Corporation (PEFCO) Company that mobilizes private capital for financing the
export of big-ticket items by U.S. firms by purchasing at fixed interest rates the medium- to long-term debt
obligations of importers of U.S. products.
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Private-label pass-throughs Related: Conventional pass-throughs.

Private placement The sale of a bond or other security directly to a limited number of investors.

Private unrequited transfers Refers to resident immigrant workers' remittances to their country of origin as
well as gifts, dowries, inheritances, prizes, charitable contributions, etc.

Privatization The act of returning state-owned or state-run companies back to the private sector, usually by
selling them.

Pro forma capital structure analysis A method of analyzing the impact of alternative 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 Financial statements as adjusted to reflect a projected or planned transaction.

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 probability function for a continuous random variable.

Probability distribution

Also called a probability function, a function that describes all the values that the random variable can
take and the probability associated with each.

Probability function A function that assigns a probability to each and every possible outcome.

Product cycle The time it takes to bring new and/or improved products to market.

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 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-flow commitment An agreement by the loan purchaser to allow the monthly loan quota to be
delivered in batches.

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.

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 the profitability of the firm. Profit margins measure performance
with relation to sales. Rate of return ratios measure performance relative to some measure of size of the
investment.

Pro forma financial statements Financial statements as adjusted to reflect a projected or planned transaction.

Program trades Also called basket trades, orders requiring the execution of trades in a large number of
different stocks at as near the same time as possible. Related: block trade
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Program trading Trades based on signals from computer programs, usually entered directly from the trader's
computer to the market's computer system and executed automatically.

Progress review A periodic review of a capital investment project to evaluate its continued economic
viability.

Progressive tax system A tax system wherein the average tax rate increases for some increases in income but
never decreases with an increase in income.

Project loan certificate (PLC) A primary program of Ginnie Mae for securitizing FHA-insured and co-
insured multifamily, hospital, and nursing home loans.

Project loan securities Securities backed by a variety of FHA-insured loan types - primarily multi-family
apartment buildings, hospitals, and nursing homes.

Project loans Usually FHA-insured and HUD-guaranteed mortgages on multiple-family housing complexes,
nursing homes, hospitals, and other development types.

Project notes (PNs) Project notes are issued by municipalities to finance federally sponsored programs in
urban renewal and housing and are guaranteed by the U.S. Department of Housing and Urban Development.

Project financing A form of asset-based financing in which a firm finances a discrete set of assets on a stand-
alone basis.

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, final payment at the end of the estimated cash flow window.

Promissory note Written promise to pay.

Property rights Rights of individuals and companies to own and utilize property as they see fit and to receive
the stream of income that their property generates.

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 the fund objectives, risks and other essential information.

Protectionism Protecting domestic industry from import competition by means of tariffs, quotas, and other
trade barriers.

Protective covenant A part of the indenture or loan agreement that limits certain actions a company takes
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

Provisional call feature A feature in a convertible issue that allows the issuer to call the issue during the non-
call period if the price of the stock reaches a certain level.

Proxy 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.
Shareholders can and often do give management their proxy, representing the right and responsibility to vote
their shares as specified in the proxy statement.
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Proxy contest A battle for the control of a firm in which the dissident group seeks, from the firm's other
shareholders, the right to vote those shareholder's shares in favor of the dissident group's slate of directors.
Also called proxy fight.

Proxy vote Vote cast by one person on behalf of another.

Public offering The sale of registered securities by the issuer (or the underwriters acting in the interests of the
issuer) in the public market. Also called public issue.

Public Securities Administration (PSA) The trade association for primary dealers in U.S. government
securities, including MBSs.

Public warehouse Warehouse operated by an independent warehouse company on its own premises.

Publicly traded assets Assets that can be traded in a public market, such as the stock market.

Puke Slang for a trader selling a position, usually a losing position, as in, "When in doubt, puke it out."

Purchase To buy, to be long, to have an ownership position.

Purchase accounting Method of accounting for a merger in which the acquirer is treated as having purchased
the assets and assumed liabilities of the acquiree, which are all written up or down to their respective fair
market values, the difference between the purchase price and the net assets acquired being attributed to
goodwill.

Purchase agreement As used in connection with project financing, an agreement to purchase a specific
amount of project output per period.

Purchase and sale A method of securities distribution in which the securities firm purchases the securities
from the issuer for its own account at a stated price and then resells them, as contrasted with a best-efforts
sale.

Purchase fund Resembles a sinking fund except that money is used only to purchase bonds if they are selling
below their par value.

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 compared
with pooling and will result in lower net income.

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 the forward rates exclusively represent the expected
future rates. In other words, the entire term structure reflects the markets expectations of future short-term
rates. For example, an increasing sloping term structure implies increasing short-term interest rates. Related:
biased expectations theories

Pure index fund A portfolio that is managed so as to perfectly replicate the performance of the market
portfolio.

Pure yield pickup swap Moving to higher yield bonds.
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Put An option granting the right to sell the underlying futures contract. Opposite of a call.

Put an option To exercise a put option.

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.

Put option This security gives investors the right to sell (or put) fixed number of shares at a fixed price within
a given time frame. 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 price The price at which the 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 his note at par on the coupon
payment date.

Put swaption A financial tool in which the buyer has 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-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 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).

Pyramid scheme An illegal, fraudulent scheme in which a con artist contrives victims to invest by promising
an extraordinary return but simply uses newly invested funds to pay off any investors who insist on
terminating their investment.

Q ratio or Tobin's Q ratio Market value of a firm's assets divided by replacement value of the firm's assets.

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