APFinancial Investments

Valuation
Determination of the value of a company's stock based on earnings and the market value of assets.

Valuation Clause
Stipulates a fixed sum for insured property in the event of loss when included in a marine cargo insurance policy.

Valuation Opportunity Cost
The potential increase in firm value associated with investments that are for gone due to capital rationing.

Valuation reserve
An allowance to provide for changes in the value of a company's assets, such as depreciation.

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Cabinet security
A stock or bond listed on a major exchange with low daily tradedvolume.

Cable
Exchange rate between British pound sterling and the U.S. dollar.

CAC 40 index
A broad-basedindex of common stocks composed of 40 of the 100 largest companies listed on the forward segment of the official list of the Paris Bourse.

Cage
A section of a brokerage firm used for receiving and disbursing funds.

Calendar
List of new issues scheduled to come to market shortly.

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APFinancial mutual funds: Tax-deductible
The effect of creating a tax deduction, such as charitable contributions and mortgageinterest.

Tax deduction
An expense that a taxpayer is allowed to deduct from taxable income.

Tax-deferred income
Dividends, interest, and unrealized capital gains on investments in an account such as a qualified retirement plan, where income is not subject to taxation until a withdrawal is made.
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Laffer curve
A curve conjecturing that economic output will increase if marginal tax rates are cut. Named after economist Arthur Laffer.

Lag
Payment of a financialobligation later than is expected or required, as in lead and lag. Also, the number of periods that an dependent variable in a regression model is "held back" in order to predict the dependent variable.

Lag response of prepayments
A delay of typically about three months between the time the weighted-average coupon of an MBSpool crosses the threshold for refinancing and observation of an acceleration in prepayment speed is observed.

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APFinancial: Tax clawback agreement
An agreement to contribute as equity to a project the value of all previously realized project-related tax benefits not already clawed back. Exercised to the extent required to cover any cash deficiency of the project.

Tax clientele
Categories of investors who have specific preferences for debt or equity because of differences in their personal tax rates.

Tax credit
A direct dollar-for-dollar reduction in tax allowed for expenses such as child care and R&D for building low-income housing. Compare tax deduction.

APFinancial Net
Morgan Stanley Capital International Pacific Free index
A market capitalization-weighted benchmarkindex made up of equities from Pacific Basin countries. Japan represents about three-fourths of the index.

Morgan Stanley Capital International World Index (MSCI World Index)
A market capitalization-weighted benchmarkindex made up of equities from 23 countries, including the United States.

Morgan Stanley REIT Index
A capitalization-weighted benchmarkindex of the most actively traded real estate investment trusts (REITs), designed to measure real estate equity performance.

Morningstar rating system
A system used in ratingmutual funds and annuity by Morningstar Incorporated of Chicago.

Mortality tables
Tables of probability that individuals of various ages will die within one year.

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Order Book Official
The exchange employee in charge of keeping a book of public limit orders on exchanges utilizing the "marker-maker" system, as opposed to the "specialist system", of executing orders. See also Market-Marker and Specialist.

Order imbalance
Orders of one kind for a stock not offset by the opposite orders, which causes a wide spread between bid and offer prices.

Order Parameter
In a nonlinear dynamic system, a variable-acting link a macrovariable, or combination of variables-that summarizes the individual variables that can affect a system. In a controlled experiment, involving thermal convection, for example, temperature can be a control parameter; in a large complex system, temperature can be an order parameter, because it summarizes the effect of the sun, air pressure, and other atmospheric variables. See: Control parameter.

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Upset price
The minimum price at which a seller of property will accept a bid at an auction.

Upside potential
The amount by which analysts or investors expect the price of a security may increase.

Upstairs market
A network of trading desks for the major brokerage firms and institutional investors, which communicate with each other by means of electronic display systems and telephones to facilitate block trades and program trades.

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APFinancial Insurance: Compound growth rate
See: Compound Annual Growth Rate

Compound interest
Interest paid on previously earned interest as well as on the principal.

Compound option
Option on an option.

Compounding
The process of accumulating the time value of money forward in time. For example, interest earned in one period earns additional interest during each subsequent time period.

Compounding frequency
The number of compounding periods in a year. For example, quarterly compounding has a compounding frequency of 4.
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Annuitant
An individual who receives benefits from an annuity.

Annuitize
To commence a series of payments from the capital that has accumulated in an annuity. The payments may be a fixed amount, for a fixed period of time, or for a lifetime.

Annuity
A regular periodic payment made by an insurance company to a policyholder for a specified period of time.

Annuity certain
An annuity that pays a specific amount on a monthly basis for a set amount of time.

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APFinancial: League tables
A ranking of lenders and advisors according to the underwriting, final take, or number of project financeloans or advisory mandates.

Leakage
Release of information selectively or not before official public announcement.

Lease
A long-termrental agreement, and a form of securedlong-termdebt.

Lease acquisition cost
The legal fees and other expenses incurred when acquiring a lease.

APFinancial growth rate
Relative strength
Movement of a stock price over the past year as compared to a market index (like the S&P 500). A value below 1.0 means the stock shows relative weakness in price movement (underperformed the market); a value above 1.0 means the stock shows relative strength over the one-year period. Equation for Relative Strength: [current stock price/year-ago stock price] divided by [current S&P 500/year-ago S&P 500]. Note: this can be a misleading indicator of performance because it does not take risk into account.

Relative strength index
Used in technical analysis, it is a measure of the number of days a stock increases in value relative to the number of days it decreases in value. The rule of thumb is that values over 70 suggest overvaluation and hence selling where as values around 30 suggest undervaluation or buying. Of course, this indicator completely ignores all fundamental information about the firm's prospects and, hence, is problematic to use as a stand-alone indicator for an investment strategy.

Relative value
The attractiveness measured in terms of risk, liquidity, and return of one instrument relative to another, or, for a given instrument, of one maturity relative to another.

Relative yield spread
The ratio of the yield spread to the yield level. Used for bonds.

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Multiple Arbitrage
In the context of hedge funds, a style of management where by the fund employs more than one arbitrage strategy. Portfolio manager opportunistically allocates capital among the various strategies in order to create the best risk/reward profile for the overall fund. Common strategies include merger arbitrage, convertible arbitrage, fixed income arbitrage, long/short equities pairs trading, and volatility arbitrage. In the context of equity and private equity investment, this refers to an investment in a firm where by standard multiples (earnings/price, book/price) indicate the price is far cheaper than industry averages.

Multiple-discriminant analysis (MDA)
Statistical technique for distinguishing between two groups on the basis of their observed characteristics.

Multiple-issuer pools
Under the GNMA-II program, pools formed through the aggregation of individual issuers'loan packages.

APFinancial mutual funds

Mutual offset
A system, such as the arrangement between the Chicago Mercantile Exchange (CME) and Singapore International Monetary Exchange (SIMEX), which allows tradingpositions established on one exchange to be offset or transferred on another exchange.

Nagoya Stock Exchange
Established after World War II, one of the three major securities markets in Japan.

Naked option strategies
An unhedgedstrategy making exclusive use of one of the following: Shortcallstrategy (selling or writing call options), and short put strategy (selling or writing put options). By themselves, these positions are called naked strategies because they do not involve an offsetting or risk-reducing position in another option or the underlying security. Related: Covered option strategies. Antithesis of covered option.

Naked strategies
Writing an option without owning the underlying asset. Holder is naked because holder may have agreed to sell something not owned.

Naked writer
See Uncovered call writing and Uncovered put writing.

APFinancial Careers

APFinancial Seminars & Workshops: Yellow sheets
Sheets published by the National Quotation Bureau that detail bid and ask prices, plus those firms that are making a market in over-the-countercorporate bonds.

Yen bond
Any bond denominated in Japanese yen currency.

Yield
The percentage return paid on a stock in the form of dividends, or the effective rate of interest paid on a bond or note.

Yield advantage
The advantage gained by purchasing convertible securities instead of common stock, which equals the difference between the rates of return of the convertible security and the common shares.
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Title insurance
Insurance policy that protects a policyholder from future challenges to the title claim a property that may result in loss of the property.

To be announced (TBA)
A contract for the purchase or sale of an MBS to be delivered at an agreed-upon future date but does not include a specified pool number and number of pools or precise amount to be delivered.

Tobin's Q
Market value of assets divided by replacement value of assets. A Tobin's Q ratio greater than 1 indicates the firm has done well with its investment decisions. Named after James Tobin, Yale University economist.

APFinancial Careers
APFinancial traditional bank instruments: 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 securitiesdistribution in which a firmpurchases 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.

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Working capital management
The deployment of current assets and current liabilities so as to maximize short-term liquidity.

Working capital ratio
Working capital expressed as a percentage of sales.

Working control
Control of a corporation by a shareholder or shareholders having less than 51% voting interest because of the wide dispersion of share ownership.

Working order
Standingorder in the marketplace, through which a brokerbids or offers to fill the order in a series of lots at opportune times in hopes of obtaining the best price.

APFinancial Representatives

Bootstrap
Term used to describe the start-up of a company with very little capital.

Bootstrapping
Creating a theoretical spot rate curve using one yield projection as the basis for the yield of the next maturity. Bootstrapping follows the work of Efron. It involves a Monte Carlo approach.

Borrow
To obtain or receive money on loan with the promise or understanding that it will be repaid.

Borrowed reserves
Funds borrowed from a Federal Reserve Bank by member banks to maintain the required reserve ratios.

APFinancial a wide variety of investment

Stock exchanges
Formal organizations, approved and regulated by the Securities and Exchange Commission (SEC), that are made up of members who use the facilities to exchange certain common stocks. The two major national stock exchanges are the New York Stock Exchange (NYSE) and the American Stock Exchange (ASE or AMEX). Five regional stock exchanges include the Midwest, Pacific, Philadelphia, Boston, and Cincinnati. The Arizona Stock Exchange is an after-hours electronic marketplace where anonymous participants trade stocks via personal computers.

Stock index
Index like the Dow Jones Industrial Average that tracks a portfolio of stocks.

Stock Index Future
A security that uses composite stock indexes to allow investors to speculate on the performance of the entire market, or to hedge against losses in long or short positions. The settlement of the contracts is in cash.

APFinancial investment companies

: Investment manager
The individual who manages a portfolio of investments. Also called a portfolio manager or a money manager.

Investment objective
The financial objective of an investor. Whether the investor requires income or capitalappreciation, for example. The investor's objective governs the investment strategy.

Investment opportunity set
The universe of choices as to investments available to an individual or corporation.

Investment philosophy
The style and general ideology of investment practiced by an investor. Certain investors favor small-capitalizationstocks, while others prefer large blue-chip stocks, for example.

Investment policy
Statement of objectives and constraints for an individual's or organization's approach.
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Seigniorage
The amount of goods and services that the government obtains by printing new money in a given period. Often we consider this in real terms, by dividing the new money by the price level.

Select ten portfolio
A unit investment trust that buys and holds for one year the ten stocks in the Dow Jones Industrial Average with the highest dividendyields.

Selective hedging
Protecting investments during some time periods and not during others.

APFinancial Job Offers
APFinancial traditional bank instruments: 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 stocktrades 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.

APFinancial Net
Simple moving average
The mean, calculated at any time over a past period of fixed length.

Simple prospect
An investment opportunity in which only two outcomes are possible.

Simple rate of return
The return from investments figured by dividing income plus capital gains by the amount of capital invested. The effect of compounding is not taken into account.

APFinancial Insurance

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 billyield for the period to expirationminus 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'sstock to gain control by offering stockholders a premium over the market value for their shares.

Pre-Money Valuation
The value of a company just before its most recent round of financing. Related: Post-Money Valuation

APFinancial Investments

Stale price arbitrage
For a number of assets, the most recent transaction price at 4PM ET does not fully reflect all available market information. One example is international equities that trade on exchanges that are located in different time zones and close 2-15 hours before U.S. markets. In addition, domestic small-capitization equities and high-yield and convertible bonds often trade infrequently and have wide bid-ask spreads. This can cause the most recent transaction price to be much different from the price that one would see in a liquid market at 4 PM, even for assets that trade on exchanges that are open at that time. Investors can take advantage of mutual funds that calculate their NAVs using stale closing prices by trading based on recent market movements. For example, if the U.S. market has risen since the close of overseas equity markets, investors can expect that overseas markets will open higher the following morning. Investors can buy a fund with a stale-price NAV for less than its current value, and they can likewise sell a fund for more than its current value on a day that the U.S. market has fallen. Similar opportunities exist when the values of infrequently or illiquidly-traded domestic assets have recently changed. Also referred to as Net Asset Value Arbitrage or NAV Arbitrage.

Stalking horse
In bankruptcy proceedings, this refers to the company that first bids for the companies assets.

APFinancial growth rate

: Compensation
Arrangement under which the delivery of goods to a party is paid for by buying back a certain amount of the product from the recipient of the goods.

Compensatory Financing Facility (CFF)
Entity that attempts to reduce the impact of export instability on country economies.

Competence
Sufficient ability or fitness for one's needs. The necessary abilities to be qualified to achieve a certain goal or complete a project.
Competition
Intra- or intermarket rivalry between or among businesses trying to obtain a larger piece of the same market share.

Competition ahead
Often used in risk arbitrage. Situation whereby another OTC market maker has transacted with investment bank at the stated market level before the bid/offer has been made.
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Kurtosis.
Measures the fatness of the tails of a probability distribution. A fat-tailed distribution has higher-than-normal chances of a big positive or negative realization. Kurtosis should not be confused with skewness, which measures the fatness of one tail. Kurtosis is sometimes referred to as the volatility of volatility.

Ladder strategy
A bondportfolio construction strategy that invests approximately equal amounts in every maturity within a given range.

Lady Macbeth Strategy
Strategy in which a third party poses as a white knight in a takeoverbid, and then joins forces with an unfriendly bidder.

APFinancial Asociates
APFinancial traditional bank instruments: Alpha equation
Regression usually run over 36-60 months of data: Return-Treasury bill= alpha + beta (S&P 500 - Treasury bill) + error. The alpha is the intercept. Note that the benchmark does not necessarily have to be the S&P 500. A mutual fund specializing in international investment might be benchmarked to a broader world market index, such as the MSCI World Index.

APFinancial Seminars & Workshops
Acceleration clause
A contract stating that the unpaid balance becomes due and payable if specific actions transpire, such as failure to make interests payments on time.

Accelerated depreciation
Any depreciation method that produces larger deductions for depreciation in the early years of an asset's life. Accelerated cost recovery system (ACRS), which is a depreciation schedule allowed for tax purposes, is one such example.

Acceptance
Contractual agreement instigated when the drawee of a time draft "accepts" the draft by writing the word "accepted" thereon. The drawee assumes responsibility as the acceptor and for payment at maturity. See: Letter of credit and banker's acceptance.

APFinancial traditional bank instruments

Commodity Bundle
One unit of the collection of the complete set of goods produced and sold in the world market.

Commodity Channel Index
An index used in technical analysis. High values mean a potential future correction (downward movement in underlying asset) and low values potentially forecast a rally. Details in Donald Lambert's October 1980 article in Commodities Magazine.

Commodity futures contract
An agreement to buy a specific amount of a commodity at a specified price on a particular date in the future, allowing a producer to guarantee the price of a product or raw material used in production.

Commodity Futures Trading Commission (CFTC)
An agency created by the US Congress in 1974 to regulate exchange trading in futures.

Commodity indices
Indices measuring the price and performance of physical commodities, often by the price of futures contracts for the commodities that are listed on commodityexchanges.

APFinancial Investment

Scale
Payment of different rates of interest on CDs of varying maturities. A bank is said to "post a scale." Commercial paperdealers also post scales.

Scale-enhancing
Describes a project that is in the same riskclass as the whole firm. That is, the project allows the firm to grow larger in the context of their current business rather than diversify into new businesses.

Scale in
Gradually taking a position in a security or market over time.

Scale order
Order to buy (sell) a security that specifies the total amount to be bought (sold) and the amount to be bought (sold) at successively decreasing (increasing) price intervals; often placed in order to average the price.

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: Come in
In the context of general equities, a fall in price.

Come out of the trade
In the context of general equities, trader'sposition in a security that results from executing a trade (or the expectations thereof). Antithesis of going into the trade.

Comeout
In the context of general equities, the opening. Antithesis of the close.

COMEX
A division of the New York Mercantile Exchange (NYMEX). Formerly known as the Commodity Exchange, COMEX is the leading US market for metals futures and options trading.

Comfort letter
A letter from an independent auditor included in a preliminary prospectus stating that, while a full audit has not been undertaken, the auditor has done a 'review' sufficient to assure that financial statement information in the preliminary prospectus is correctly prepared to the best of the auditor's knowledge. The auditor in effect states that, had a full audit been done, they are comfortable that the audited financial statements would not be materially different from the ones presented in the preliminary prospectus.
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Average cost of capital
A firm's required payout to bondholders and stockholders expressed as a percentage of capitalcontributed to the firm. Average cost of capital is computed by dividing the total required cost of capital by the total amount of contributed capital.

Average daily balance
A method for calculating interest in which the balance owed each day by a customer is divided by the number of days. See also: Adjusted balance method and previous balance method.

Average discount rate
Purchaserstender their competitive bids on a discount rate basis. The weighted, or adjusted mean of all bids accepted in Treasury bill auctions.

Average down
A strategy used by investors to reduce the average cost of shares, in which the investorpurchases more shares with a fixed amount of capital as the price of the shares decreases. The investor receives more shares per dollar and decreases the average price per share.

APFinancial Asociates
APFinancial mutual funds: Accrual basis
In the context of accounting, practice in which expenses and income are accounted for as they are earned or incurred, whether or not they have been received or paid. Antithesis of cash basis accounting.

Accrual bond
A bond on which interest accrues but is not paid to the investor during the time of accrual. The amount of accrued interest is added to the remaining principal of the bond and is paid at maturity.

Accrued benefits
The pension benefits earned by an employee according to the years of the employee's service.

APFinancial growth rate
Refinancing
An extension and/or increase in amount of existing debt.

Reflation
Government monetary action that causes a reversal of deflation.

Refund
To retire existing bondissues through the sale of a new bondissue, usually to reduce the interest rate being paid.

Refundable
Eligible for refunding under the terms of a bond indenture.

APFinancial Seminars & Workshops

Carrying costs
Costs that increase with increases in the level of investment in current assets.

Carrying value
Book value.

Cartel
A group of businesses or nations that act together as a single producer to obtain marketcontrol and to influence prices in their favor by limiting production of a product. The United States has laws prohibiting cartels.

APFinancial investment products

Cash delivery
The provision of some futures contracts that requires not delivery of underlying assets but settlement according to the cash value of the asset.

Cash discount
An incentive offered to purchasers of a firm's product for payment within a specified time period, such as ten days.

Cash dividend
A dividend paid in cash to a company'sshareholders. The amount is normally based on profitability and is taxable as income. A cashdistribution may include capital gains and return of capital in addition to the dividend.

Cash earnings
A firm'scash revenues less cash expenses, which excludes the costs of depreciation.

Cash-equivalent items
Examples include Treasury bills and Banker's Acceptances.

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: Regression equation
An equation that describes the average relationship between a dependent variable and a set of explanatory variables.

Regression toward the mean
The tendency that a random variable will ultimately have a value closer to its mean value.

Regressive tax
A tax system that provides that average tax rates decrease with increases in individuals' income brackets.

Regular settlement
Transaction in which a stockcontract is settled and delivered on the fifth full business day following the date of the transaction (trade date). In Japan, regular settlement occurs three business days following the trade date; in London, two weeks following the trade date (at times, three weeks); in France, once per month.
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Self-liquidating loan
Loan to financecurrent assets. The sale of the current assets provides the cash to repay the loan.

Self-regulatory organization (SRO)
Organizations that enforce fair, ethical, and efficient practices in the securities and commodityfutures industries, including all national securities and commoditiesexchanges and the NASD.

Self-selection
Consequence of a contract that induces only one group to participate.



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