PAC Bond
Acronym 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.

Package mortgage
A mortgage on a house and property in the house.

Pacific Stock Exchange
Used for listed equity securities. Regional exchange located in Los Angeles and San Francisco; only U.S. listed 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.

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 M.O.C. orders (especially relating to futures/options expirations).

Pairoff
A buy-back to offset and effectively liquidate a prior sale of securities.

Paired shares
Stocks of two companies under the same management that are sold as one unit with one certificate.

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," for instance, is worth an amount equivalent to its original issue value or its value upon redemption at maturity -- typically $1000/bond. See: discount, premium.

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 the yield curve in which the change in the yield on all maturities is the same number of basis points. In other words, if the 3 month T-bill increases 100 basis points (one percent), then the 6 month, 1 year, 5 year, 10 year, 20 year, and 30 year rates increase by 100 basis points as well. Related: Non-parallel shift in the yield curve.

Parameter
A representation that characterizes a part of a model (e.g. a growth rate), the value of which is determined outside of the model. See: exogenous variable.

Par bond
A bond trading at its face value.

Parent company
A company that controls subsidiaries through its ownership of voting stock, as well as running its own business.

Paris Bourse
National stock market of France.

Paris Interbank Offer Rate (P.I.B.O.R.)
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 upon only as an equity instrument. (conversion ratio x 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 x forex rate x A.D.R. 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
Making safe investments such as money market investments while deciding where to invest one's 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 such stock is to conceal ownership/control of a raider, thus sidestepping the Williams Act requirements of 5% holding limits. See: Rule 13d.

Partial
Used in the context of general equities. Trade whose size is only part of the total customer indication/order, usually done to avoid a compromise in price and also to get the customer started versus losing his total, larger, inquiry/order to a competitor.

"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 he 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 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 where the policyholder is not guaranteed a crediting rate, but instead receives a return based on the actual experience of the portfolio managed by the life company.

Participating life insurance policies
Life insurance that pays dividends to policyholders based on the company's success as provided by few claims and profitabe 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
Used in the context of general equities. Certificate 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, which 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. 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 partnership.

Par value
Also called the maturity value or face value, the amount that the issuer agrees to pay at the maturity date.

Par value of currency
The official exchange rate between two countries' currencies.

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 passive investment participation.

Passive bond
A bond without any interest yield.

Passive Income Generator (PIG)
An investment that favors passive income, such as an income-oriented real estate limited partnership.

Passive investing
Investment in a profitable business opportunity that is deemed passive by the IRS and thus benefits from tax deductions.

Passive investment strategy
See: passive management.

Passive investment management
Buying a well-diversified portfolio to represent a broad-based market index without attempting to search out mispriced securities.

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

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

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.

Payables
Related: Accounts payable.

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.

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.

Payback
The length of time it takes to recover the initial cost of a project, without regard to the time value of money.

Paydown
In a Treasury refunding, the amount by which the par value of the securities maturing exceeds that of those sold. Used in the context of general equities. To pay a lesser 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 each shareholder of record will be sent a check for the declared dividend.

Payment float
Company-written checks that have not yet cleared.

Payment-In-Kind (P.I.K.) 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 be done on a bilateral basis (between pairs of affiliates), or on a multi-lateral basis (taking all affiliates together).

Payments pattern
Describes the lagged collection pattern of receivables, for instance the probability that a 72-day-old account will still be unpaid when it is 73-days-old.

Payoff diagram
In option pricing, a graph of the value of the option position at expiration as a function of the underlying asset price.

Payout ratio
Generally, the proportion of earnings paid out to the common stockholders as cash dividends. More specifically, the firm's cash dividend divided by the firm's earnings in the same reporting period.

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 price 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)Situation 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 worthy, price due to its quality.

PC
Abbreviation for participation certificate.

P-coast
Used for listed equity securities. See: Pacific Stock Exchange.

P/E
See: Price/Earnings ratio.

Peak
The transition from the end of an economic expansion to the start of a contraction.

Pecking-order view (of capital structure)
The argument that external financing transaction 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, debt-equity hybrids, and finally, new equity at the least preferred source.

P/E effect
That portfolios with low P/E stocks have exhibited higher average risk-adjusted returns than high P/E stocks. Related: value manager.

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.

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 O.T.C., many of them in the local markets of Denver, Vancouver, or Salt Lake City.

Pension Benefit Guaranty Corporation (P.B.G.C.)
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 plan
A fund that is established for the payment of retirement benefits.

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.

Pension reversion
Termination of an overfunded defined benefit pension plan and the replacement thereof 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
Poison pill in which 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.

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."

P/E ratio
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 10 times earnings. P/E = Current stock price divided by trailing annual earnings per share or expected annual earnings per share.

Percentage premium
Mainly applies to convertible securities. Premium over parity of a convertible bond divided by parity.

Percent to double
Percentage that the stock price has to rise (fall) to double the price of the call (put).

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.

Perfected first lien
A first lien that is duly recorded with the cognizant governmental body so that the lender will be able to act on it should the borrower default.

Perfect hedge
A financial result in which the profit and loss from the underlying asset and the hedge position are equal.

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 the following conditions: 1)trading is costless, and access to the financial markets is free, 2)information about borrowing and lending opportunities is freely available, 3 there are many traders, and no single trader can have a significant impact on market prices.

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 in a perfect capital market.

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 the following questions: (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 evaluation of a manager's performance 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 measurement
The calculation of the return realized by a money manager 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 used by shareholders 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 which an investor feels will significantly rise in value.

Periodic payment plan
Accumulation of capital in a mutual fund by making regular payments on a monthly or quarterly basis.

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.

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.

PERLS
Acronym for Principal Exchange-Rated-Linked Securities. 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.

Permanent financing
Long-term financing using either debt or equity.

Perpendicular spread
Option strategy involving the purchase of options with similar expiration dates and different exercise prices.

Perpetual bond
Non-redeemable bond with no maturity date and which pays regular interest rates indefinitely.

Perpetual inventory
Inventory system whereby 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 décor.

Personal article floater
Policy designed to cover personal valuables.

Personal exemption
Amount of money a person can exclude from personal income for each member of the household in calculating taxes.

Personal income
Total income received by persons from all sources, including wages, salaries, rents, etc.

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 from 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.

Phantom income
Income from a limited partnership which creates taxability without generating cash flow.

Phantom stock plan
An incentive scheme whereby an executive receives a bonus based on the increase in market price of the company's stock.

Philadelphia Board of Trade (PBOT)
A subsidiary of the Philadelphia Stock Exchange which trades currency futures.

Philadelphia Stock Exchange (P.H.L.X.)
A securities exchange where American and European foreign currency options on spot exchange rates are traded.

Philippine Stock Exchange
Stock exchange based in the Philippines which operates two trading floors, at Manila and Makati.

Phillips Curve
A graph that supposedly shows the relationship between inflation and unemployment. It is conjectured that there is a simple tradeoff between inflation and unemployment (high inflation and low unemployment and low inflation and high unemployement). Obviously, the relation between these important macroeconomic variables is more complicated than this simple graph would suggest. Named after A. W. Phillips. For a modern treatment, see work of Robert Lucas.

Phone switching
In mutual funds, the ability to transfer shares between funds in the same 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 commodity
See commodity.

Physical verification
A procedure used by auditors to ensure that the inventory recorded in the book is correct by actually checking out the physical inventory.

P & I
Abbreviation 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
The bid and asked prices quoted by a broker 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
Mainly applies to convertible securities. Increment of bonds that trade in portions of $1,000 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 captial markets.

Piggybacking
Illegal practice by a broker who trades stocks, bonds or commodity in his personal account that he or she has just traded for a customer. The broker assumes that the customer is making the trade on vaulable inside information.

Piggyback Registration
A situation when a securities underwriter allows existing holdings of shares in a corporation to be sold in combination with an offering of new public shares.

PIK (Payment-In-Kind) securities
Highly speculative bons 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 details the bid and ask prices of thousands of O.T.C. stocks, as well as market-makers who trade each stock.

Pip
Used for listed equity securities. Smallest unit of a currency (i.e., cents, 1/100 yen, pfenig, shilling).

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
Acronym for Principal, Interest, Taxes, and Insurance, the four main parts of monthly mortgage payments.

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
Ratio compiled by the Bond Buyer newspaper that measures the percentage of last week's new municipal bond offering that have been bought from the underwriters.

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.

Plan for reorganization
A plan for reorganizing a firm during the Chapter 11 bankruptcy process.

Planned amortization class (P.A.C.)
(1) One class of C.M.O. that carries the most stable cash flows and the lowest prepayment risk of any class of C.M.O. Because of a stable cash flow, it is considered the least risky C.M.O. (2) A C.M.O. bond class that stipulates cash-flow contributions to a sinking fund. With the P.A.C., principal payments are directed to the sinking fund on a priority basis in accordance with a predetermined payment schedule, with prior claim to the cash flows before other C.M.O. 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 P.A.C. is therefore very stable over a wide range of prepayment experience.

Planned capital expenditure program
Capital expenditure program as outlined in the corporate financial plan.

Planned financing program
Program of short-term and long-term financing as outlined in the corporate financial plan.

Planning horizon
The length of time a model projects into the future.

Plan participants
Employees or other beneficiaries who are eligible to receive benefits from a company's employee benefit plan.

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.

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
Term used to describe an unprofessional investor who makes stock trades with high, uncalculated risk.

Pledging
See hypothecation.

Plow back
The common practice of high growth companies to reinvest their earnings in the business rather than pay out them out as dividends.

Plowback rate
Related: retention rate.

Plug
A variable that handles financial slack in the financial plan.

Plus
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 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 solely used to record changes in price.

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 agents are instructed to swallow if capture is imminent.

Poison put
A covenant allowing the bondholder to demand repayment in the event of a hostile merger.

Policy asset allocation
A long-term asset allocation method, in which the investor seeks to assess an appropriate long-term "normal" asset mix that represents an ideal blend of controlled risk and enhanced return.

Policyholder
An individual owning 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.

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.

Political risk
Possibility of the 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) M.B.S.s.

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 ability of employees to carry benefits from a previous job to the next.

Portfolio
A collection of investments, real and/or financial.

Portfolio beta
Used in the context of general equities. The beta of the portfolio is the weighted sum of the individual asset betas. The weights are simply the investment weights in the portfolio. E.g. if 50% of money in stock A with a beta of 2.00 and 50% of money in stock B with a beta of 1.00; the portfolio beta is 1.50. Relative volatility of 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 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 level
Used in the context of general equities. Indication not yet at the institutional trading desk but being considered by the portfolio manager. Less certainty exists because the institutional trading desk itself has not received a firm order, only the manager's interest. Show me type customer whose attitude is one of pickiness on price, either due to his own feeling on the stock or constraints imposed upon him as a fiduciary for a portfolio of stocks (and thus his need to examine the portfolio goals and restraints before transacting).

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 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 opportunity set
The expected return/standard deviation pairs of all portfolios that can be constructed from a given set of assets.

Portfolio restructuring
Applies to derivative products. Recompostition 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
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 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 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 whereby 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.

Position diagram
Diagram showing the possible payoffs from a derivative investment.

Positive float
See: float.

Positive yield curve
Situation which exists when long-term debt interest rates are higher than short-term debt rates, due to the increased risk involved with long-term debt security.

Possessions corporation
A type of corporation permitted under the U.S. tax code whereby a branch operation in a U.S. possessions 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.

Postdated check
A check that only becomes payable and negotiable on the future date specified.

Postponement option
The option of postponing a project without eliminating the possibility of undertaking it.

Postponing income
Purposely delaying receipt of income so that it will be received in a later year to reduce current tax liability.

Posttrade 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 movement of assets between accounts or trading in a person's securities portfolio.

Prearranged trading
Possibly fraudulent practice whereby commodities dealers carry out risk-free trades at predetermined prices to acquire tax advantages.

Preauthorized checks (P.A.C.s)
Checks that are authorized by the payer in advance and are written either by the payee or by the payee's bank and then deposited in the payee's bank account.

Preauthorized electronic debits (P.A.D.s)
Debits to its bank account in advance by the payer. The payer's bank sends payment to the payee's bank through the Automated Clearing House (A.C.H.) system.

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 stockholder's right to anything of value distributed by the company.

Preference
Refers to over-the-counter trading. Select a dealer to handle a trade despite his market not being the best available. Often the "preferenced dealer" will then move his market in-line.

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. However, the theory rejects the assertion that the risk premium must rise uniformly with maturity. Instead, to the extent that the demand for and supply of funds does not match for a given maturity range, some participants will shift to maturities showing the opposite imbalances. As long as such investors 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 more importantly: preferred shareholders get 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. The stock shares 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 prospectus
A preliminary version of a prospectus.

Premium
(1) for a bond above the par value. (2) The price of an option contract; also, in futures trading, the amount the futures price exceeds the price of the spot commodity. For convertibles, amount by which the price of a convertible exceeds parity, and is usually expressed as a percentage. If a stock is trading at $45 and the bond convertible at $50 is trading at 105, the premium is $15, or 16.66% (15/90). If the premium is high, the bond trades like any fixed income bond, if low, like a stock. See: gross parity, net parity. 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. For options, price of an option in the open market (sometimes refers to the portion of the price that exceeds parity). 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 offerings stockholders a premium over the marekt 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 paid by a borrower to a lender when a loan is repaid before its scheduled time of maturity.

Prepayments
Payments made in excess of scheduled mortgage principal repayments.

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.

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 lower 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 $100x(1/1 + .10)=$91.

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+.10]

Present value of growth opportunities
Net present value (N.P.V.) of investments the firm is expected to make in the future.

President
Highest-ranking officer in a corporation after the Chief Executive Officer.

Presidential election cycle theory
A theory that stock market trends can be predicted and explained by the four-year presidential election cycle.

Presold issue
An issue that is sold out before the coupon announcement.

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/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 discovery process
The process of determining the prices of assets in the marketplace through the interactions of buyers and sellers.

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

Price elasticities
The percentage change in the quantity divided by the percentage change in the price. Answers the question: How much will the demand for my product decrease if I raise prices by 10%.

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 is 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 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 his indicated level. See: takes price.

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 of the other lesser producers.

Price of admission
Used in the context of general equities. Cost to become a player in a stock due to an inordinately aggressive market being hit or taken (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 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 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.

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.

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 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 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 they have no influence on them.

Price value of a basis point (P.V.B.P.)
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 and falls in security prices based on accompanying 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.

Pricey
Used in the context of general equities. Term used for an unrealistically low bid price or unrealistically high offer price.

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 dealer
Usually refers to the select list of securities firms that are authorized to deal in new issues of government bonds.

Primary distribution
Used in the context of general equities. Sale of a new issue of stocks or bonds, as distinguished from a secondary distribution.

Primary earnings per (common) share
Earnings available for the payment of dividends to common stockholers divided by the number of common shares outstanding.

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.

PRIME
Acronym for Prescribed Right to Income and Maximum Equity, a certificate which 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 commercial paper as decided by rating agencies such as Moody's.

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.

Prime rate fund
A mutual fund that buys portions of corporate loans from banks and passes 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
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 of diversification
Highly diversified portfolios will have negligible unsystematic risk. In other words, unsystematic risks disappear in portfolios, and only systematic risks survive.

Principal only (P.O.)
A mortgage-backed security (M.B.S.) in which the holder receives only principal cash flows on the underlying mortgage pool. The principal-only portion of a stripped M.B.S. creates P.O. securities, all of the principal distribution due from the underlying collateral pool is paid to the registered holder of the stripped M.B.S. based on 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, and must report all trading in the stock to the SEC because of insider trading rules.

Print
Used in the context of general equities. (as a verb) Execute a trade, evidenced by its printing on the ticker tape. A trade. (as a noun)

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. N.Y.S.E. 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 that was not executed is then reported back to the broker, who informs the customer that the trade was not completed because there was stock ahead. See: standing.

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 with a higher claim on all dividends and assets in liquidation than other preferred stock.

Private Export Funding Corporation (P.E.F.C.O.)
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.

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 marekt value of all of the divisions of a company if they were each independent and established their own market stock prices.

Private Mortgage Insurance (PMI)
An insurance 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. Used in the context of general equities. For example, sale of stocks, bonds, or other investments directly to an institutional investor like an insurance company, avoiding the need for S.E.C. registration if the securities are purchased for investment as opposed to resale. Antithesis of public offering.

Private purpose bond
A municipal bond from which more than 10% of the bond's benefit goes to private activities.

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.

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.

Proceeds sale
OTC securities sale in which the revenue is used to buy another security.

Producer Price Index (PPI)
Index measuring changes in wholesale prices, published by the U.S. Bureau of Labor Statistics every month.

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

Production-flow commitment
An agreement by the loan purchaser to allow the 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 rate
The coupon rate at which a pass-through security guaranteed by the 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.

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.

Profile buyer/seller
Used in the context of general equities. Trader trying to get involved in a stock who comes out as a buyer/seller to draw a call from a customer. Hence, the trader has nothing real, or natural.

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.

Profit
Revenue minus cost. How much you make on a transaction.

Profit center
A division of an organization that is responsible for producing its own profits.

Profit forecast
A prediction of future profits of a company which may affect investment decisions.

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-sharing plan
An incentive system whereby employees share in company profits through a cash fund or a deferred plan used to buy stock or bonds.

Profit taking
Used in the context of general equities. Action by short-term securities traders to cash-in on gains created by a sharp market rise, which pushes Down prices temporarily but implies an upward market trend. See: ring the [cash] register.

Pro forma capital structure analysis
A method of analyzing the impact of alternative