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BSA I-29
Prof. Amy Marty
Debenture Bond
An unsecured bond whose holder has the claim of a general creditor on all assets of
the issuer not pledged specifically tosecure other debt. Compare subordinated debenture
bond and collateral trust bonds.
Senior Mortgage
A mortgage that is secured by a lien on a property and that has preference to
another mortgage on the same property. In general, the senior mortgage is the original
mortgage; one takes out a junior mortgage to pay for home repairs or for other
reasons. In the event of default or bankruptcy, the senior mortgage must be paid
entirely before the junior mortgage is paid at all. As a result, a senior mortgage carries
a lower interest rate than a junior mortgage. See also: Piggyback mortgage.
Junior Mortgage
A mortgage that will be satisfied only after more senior mortgages have been
satisfied. E.g., a first mortgage will be satisfied prior to a second or a third mortgage.
Bond Discount
The difference by which a bond's market price is lower than its face value. The
antithesis of a bond premium, which prevails when the market price of a bond is higher
than its face value. See: Original issue discount.
Sinking Fund
A fund to which money is added on a regular basis that is used to
ensure investor confidence that promised payments will be made and that is used
to redeem debt securities or preferred stock issues.
Refunding
Redeeming a bond with proceeds received from issuing lowercost debt obligations with ranking equal to or superior to the debt to be redeemed.
Risk Premium
The reward for holding the risky market portfolio rather than the risk-free asset.
The spread between Treasury and non-Treasury bonds of comparable maturity.
Debt Limitation
Callable Bond
A bond that may be redeemed before maturity. Callability allows the bond to be
called at the discretion of the issuerwithin certain limits. When the bond is called,
the bondholder receives the par value (or sometimes a bit more) and does not receive
any more coupons. Callable bonds are issued to allow the issuers
to hedge against interest rate risk. That is, if interest rates fall significantly, the issuer
can call the bond and issue a new bond at a lower interest rate, reducing its liabilities.
However, to protect the bondholder, most callable bonds also include call
protection which prevents the bonds from being called for a certain period of time and
thereby guarantees the current interest rate for that time.
Common Stock
Securities that represent equity ownership in a company. Common shares let
an investor vote on such matters as the election of directors. They also give the holder
a share in a company's profits via dividend payments or the capital appreciation of
the security. Units of ownership of a public corporation with junior status to the claims
of secured/unsecured creditors, bondholders and preferred shareholders in the event
of liquidation.
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.
Stock Option
An option whose underlying asset is the common stock of a corporation.
Stock Split
Occurs when a firm issues new shares of stock and in turn lowers the
current market price of its stock to a level that is proportionate to pre-split prices.
Preemptive Right
Common stockholders' right to anything of value distributed by the company.
Treasury Shares
Shares issued in the name of the corporation. The shares are considered issued,
but not outstanding. Usually refers to stock that was once traded in the market but has
since been repurchased by the corporation. Treasury stock not considered when
calculating dividends or earnings per share.
Vertical Integration
A business strategy in which a company expands its operations to offer similar
goods and services at a different point on the supply chain. For example, a
widget wholesaler may expand into retailing widgets directly with consumers. More
concretely, an oil exploration company may also begin refining oil in addition to its
exploration operations. Vertical integration always occurs at different points on the
supply chain: a retailer does not expand into retailing other products. Rather, it may
move into wholesaling.
Horizontal Integration
Leveraged Buyout
The acquisition of a publicly-traded company, often by a group of
private investors, that is financed with debt. Often, the acquirer in a LBO issues junk
bonds in order to raise the capital necessary for the acquisition. A leveraged buyout
allows a company to be taken over with little capital, but it can be a high risk endeavor.
Voluntary Insolvency
An insolvent debtor owing debts exceeding in amount in the sum of P1000,
may apply to be discharged from his debts and liabilities by petition to the RTC of the
province or city in which he has resided for 6 months next preceding the filing of the
petition
Involuntary Insolvency
An adjudication of insolvency may be made by the petition of 3 or more
creditors, residents of the Philippines, whose credits or demands accrued in the
Philippines, for the amount of which credits or demands are in the aggregate
of not less than P1000
Debt/equity ratio
Indicator of financial leverage. Compares assets provided by creditors to assets
provided by shareholders. Determined by dividing long-term debt by
common stockholder equity.
Receivership
In corporate bankruptcy, a situation in which a court or regulator appoints a
custodian to administer all assets and debts. This custodian is known as a receiver;
his/her duty is to pay off as many debts as possible as cheaply as possible. One
obvious way to do this is to liquidate the company, but this is not always done. The
receiver may restructure the company to put it on a path toward solvency.
One where preserving capital and minimizing risk is of utmost concern. This
strategy invests in lower risk securities like money market and fixed income securities,
and blue chip and large cap equities rather than riskier securities in an attempt to
preserve a portfolios value. In addition to preserving capital, conservative investment
strategies also often look to generate current income.
Feasibility Study
Feasibility Study is a systematic survey, analysis and evaluation of a project on
the basis of available statistics and forecasting to determine the viability of the plan
proposed.
Market Feasibility
It is concerned with the price and quantity of a product that will be bought or
produced at present and over a specified period in the future.
Managerial Feasibility
In a small business, authority & responsibility should be pinpointed as well as the
salary ranges. In a big corporation, lines of authority & responsibilities should be
clearly defined, competent employees should be hired and salary range should be
competitive. There should be effective policies in recruitment & training of personnel.
Commercial Feasibility
Commercial Feasibility refers to availability of raw material, skilled labor,
infrastructure, and other factors of production. A number of projects have run into
rough weather due to poor commercial viability.
Financial Feasibility
The study should cover the volume of capital requirements for all phases of the
operation; the cash flow; the projected sales & revenue; the projected fixed & variable
costs; projection of expected future income; the payback period of the investments.
Technical Feasibility
The technical capability of the personnel as well as the capability of the available
technology should be considered.