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Long coupons (1) Bonds or notes with a long current maturity. (2) A bond on which one of the coupon
periods, usually the first, is longer than the other periods or the standard period.

Long hedge The purchase of a futures contract(s) in anticipation of actual purchases in the cash market. Used
by processors or exporters as protection against an advance in the cash price. Related: Hedge, short hedge

Long position An options position where a person has executed one or more option trades where the net
result is that they are an "owner" or holder of options (i. e. the number of contracts bought exceeds the
number of contracts sold).


Occurs when an individual owns securities. An owner of 1,000 shares of stock is said to be "Long the
stock." Related: Short position

Long run A period of time in which all costs are variable; greater than one year.

Long straddle A straddle in which a long position is taken in both a put and call option.

Long-term In accounting information, one year or greater.

Long-term assets Value of property, equipment and other capital assets minus the depreciation. This is an
entry in the bookkeeping records of a company, usually on a "cost" basis and thus does not necessarily reflect
the market value of the assets.

Long-term debt An obligation having a maturity of more than one year from the date it was issued. Also
called funded debt.

Long-term debt/capitalization Indicator of financial leverage. Shows long-term debt as a proportion of the
capital available. Determined by dividing long-term debt by the sum of long-term debt, preferred stock and
common stockholder equity.

Long-term debt ratio The ratio of long-term debt to total capitalization.

Long-term financial plan Financial plan covering two or more years of future operations.

Long-term liabilities Amount owed for leases, bond repayment and other items due after 1 year.

Long-term debt to equity ratio A capitalization ratio comparing long-term debt to shareholders' equity.

Look-thru A method for calculating U.S. taxes owed on income from controlled foreign corporations that
was introduced by the Tax Reform Act of 1986.

Lookback option An option that allows the buyer to choose as the option strike price any price of the
underlying asset that has occurred during the life of the option. If a call, the buyer will choose the minimal
price, whereas if a put, the buyer will choose the maximum price. This option will always be in the money.

Low-coupon bond refunding Refunding of a low coupon bond with a new, higher coupon bond.

Low price This is the day's lowest price of a security that has changed hands between a buyer and a seller.

Low price-earnings ratio effect The tendency of portfolios of stocks with a low price-earnings ratio to
outperform portfolios consisting of stocks with a high price-earnings ratio.

Ladder strategy A bond portfolio strategy in which the portfolio is constructed to have approximately equal
amounts invested in every maturity within a given range.
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Lag Payment of a financial obligation later than is expected or required, as in lead and lag. Also, the number
of periods that an independent variable in a regression model is "held back" in order to predict the dependent
variable.

Lag response of prepayments There is typically a lag of about three months between the time the weighted
average coupon of an MBS pool has crossed the threshold for refinancing and an acceleration in prepayment
speed is observed.

Lambda The ratio of a change in the option price to a small change in the option volatility. It is the partial
derivative of the option price with respect to the option volatility.

Last split After a stock split, the number of shares distributed for each share held and the date of the
distribution.

Last trading day The final day under an exchange's rules during which trading may take place in a particular
futures or options contract. Contracts outstanding at the end of the last trading day must be settled by delivery
of underlying physical commodities or financial instruments, or by agreement for monetary settlement
depending upon futures contract specifications.

Last-In-First-Out (LIFO) A method of valuing inventory that uses the cost of the most recent item in
inventory first.

Law of large numbers The mean of a random sample approaches the mean (expected value) of the
population as the sample grows.

Law of one price An economic rule stating that a given security must have the same price regardless of the
means by which one goes about creating that security. This implies that if the payoff of a security can be
synthetically created by a package of other securities, the price of the package and the price of the security
whose payoff it replicates must be equal.

Lead Payment of a financial obligation earlier than is expected or required.

Lead manager The commercial or investment bank with the primary responsibility for organizing syndicated
bank credit or bond issue. The lead manager recruits additional lending or underwriting banks, negotiates
terms of the issue with the issuer, and assesses market conditions.

Leading economic indicators Economic series that tend to rise or fall in advance of the rest of the economy.

Leakage Release of information to some persons before official public announcement.

LEAPS Long-term equity anticipation securities. Long-term options.

Lease A long-term rental agreement, and a form of secured long-term debt.

Lease Rate The payment per period stated in a lease contract.

Ledger cash A firm's cash balance as reported in its financial statements. Also called book cash.

Legal capital Value at which a company's shares are recorded in its books.

Legal bankruptcy A legal proceeding for liquidating or reorganizing a business.

Legal defeasance The deposit of cash and permitted securities, as specified in the bond indenture, into an
irrevocable trust sufficient to enable the issuer to discharge fully its obligations under the bond indenture.
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Legal investments Investments that a regulated entity is permitted to make under the rules and regulations
that govern its investing.

Lend To provide money temporarily on the condition that it or its equivalent will be returned, often with an
interest fee.

Lessee An entity that leases an asset from another entity.

Lessor An entity that leases an asset to another entity.

Letter of comment A communication to the firm from the SEC that suggests changes to its registration
statement.

Letter of credit (L/C) A form of guarantee of payment issued by a bank used to guarantee the payment of
interest and repayment of principal on bond issues.

Letter stock Privately placed common stock, so-called because the SEC requires a letter from the purchaser
stating that the stock is not intended for resale.

Level pay The characteristic of the scheduled principal and interest payments due under a mortgage such that
total monthly payment of P&I is the same while characteristically the principal payment component of the
monthly payment becomes gradually greater while the monthly interest payment becomes less.

Level-coupon bond Bond with a stream of coupon payments that are the same throughout the life of the
bond.

Leverage The use of debt financing.

Leverage clientele A group of shareholders who, because of their personal leverage, seek to invest in
corporations that maintain a compatible degree of corporate leverage.

Leverage ratios Measures of the relative contribution of stockholders and creditors, and of the firm's ability
to pay financing charges. Value of firm's debt to the total value of the firm.

Leverage rebalancing Making transactions to adjust (rebalance) a firm's leverage ratio back to its target.

Leveraged beta The beta of a leveraged required return; that is, the beta as adjusted for the degree of
leverage in the firm's capital structure.

Leveraged buyout (LBO) A transaction used for taking a public corporation private financed through the use
of debt funds: bank loans and bonds. Because of the large amount of debt relative to equity in the new
corporation, the bonds are typically rated below investment grade, properly referred to as high-yield bonds or
junk bonds. Investors can participate in an LBO through either the purchase of the debt (i.e., purchase of the
bonds or participation in the bank loan) or the purchase of equity through an LBO fund that specializes in
such investments.

Leveraged equity Stock in a firm that relies on financial leverage. Holders of leveraged equity face the
benefits and costs of using debt.

Leveraged lease A lease arrangement under which the lessor borrows a large proportion of the funds needed
to purchase the asset and grants the lender a lien on the assets and a pledge of the lease payments to secure the
borrowing.

Leveraged portfolio A portfolio that includes risky assets purchased with funds borrowed.
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Leveraged required return The required return on an investment when the investment is financed partially
by debt.

Liability A financial obligation, or the cash outlay that must be made at a specific time to satisfy the
contractual terms of such an obligation.

Liability funding strategies Investment strategies that select assets so that cash flows will equal or exceed
the client's obligations.

Liability swap An interest rate swap used to alter the cash flow characteristics of an institution's liabilities so
as to provide a better match with its assets.

LIBOR The London Interbank Offered Rate; the rate of interest that major international banks in London
charge each other for borrowings. Many variable interest rates in the U.S. are based on spreads off of LIBOR.
There are many different LIBOR tenors.

Lien A security interest in one or more assets that is granted to lenders in connection with secured debt
financing.

LIFO (Last-in-first-out) The last-in-first-out inventory valuation methodology. A method of valuing
inventory that uses the cost of the most recent item in inventory first.

Lifting a leg Closing out one side of a long-short arbitrage before the other is closed.

Limit order An order to buy a stock at or below a specified price or to sell a stock at or above a specified
price. For instance, you could tell a broker "Buy me 100 shares of XYZ Corp at $8 or less" or to "sell 100
shares of XYZ at $10 or better." The customer specifies a price and the order can be executed only if the
market reaches or betters that price. A conditional trading order designed to avoid the danger of adverse
unexpected price changes.

Limit order book A record of unexecuted limit orders that is maintained by the specialist. These orders are
treated equally with other orders in terms of priority of execution.

Limit price Maximum price fluctuation

Limitation on asset dispositions A bond covenant that restricts in some way a firm's ability to sell major
assets.

Limitation on liens A bond covenant that restricts in some way a firm's ability to grant liens on its assets.

Limitation on merger, consolidation, or sale A bond covenant that restricts in some way a firm's ability to
merge or consolidate with another firm.

Limitation on sale-and-leaseback A bond covenant that restricts in some way a firm's ability to enter into
sale and lease-back transactions.

Limitation on subsidiary borrowing A bond covenant that restricts in some way a firm's ability to borrow at
the subsidiary level.

Limited liability Limitation of possible loss to what has already been invested.

Limited partner A partner who has limited legal liability for the obligations of the partnership.

Limited partnership A partnership that includes one or more partners who have limited liability.
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Limited-liability instrument A security, such as a call option, in which the owner can only lose his initial
investment.

Limited-tax general obligation bond A general obligation bond that is limited as to revenue sources.

Line of credit An informal arrangement between a bank and a customer establishing a maximum loan
balance that the bank will permit the borrower to maintain.

Linear programming Technique for finding the maximum value of some equation subject to stated linear
constraints.

Linear regression A statistical technique for fitting a straight line to a set of data points.

Linter's observations John Lintner's work (1956) suggested that dividend policy is related to a target level of
dividends and the speed of adjustment of change in dividends.

Liquid asset Asset that is easily and cheaply turned into cash - notably cash itself and short-term securities.

Liquid yield option note (LYON) Zero-coupon, callable, putable, convertible bond invented by Merrill
Lynch & Co.

Liquidating dividend Payment by a firm to its owners from capital rather than from earnings.

Liquidation When a firm's business is terminated, assets are sold, proceeds pay creditors and any leftovers
are distributed to shareholders. Any transaction that offsets or closes out a Long or short position. Related:
buy in, evening up, offsetliquidity.

Liquidation rights The rights of a firm's securityholders in the event the firm liquidates.

Liquidation value Net amount that could be realized by selling the assets of a firm after paying the debt.

Liquidator Person appointed by unsecured creditors in the United Kingdom to oversee the sale of an
insolvent firm's assets and the repayment of its debts.

Liquidity A market is liquid when it has a high level of trading activity, allowing buying and selling with
minimum price disturbance. Also a market characterized by the ability to buy and sell with relative ease.

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