**This
is a glossary of terms that are, for the most part, unique
to the world of financial investigations, or terms that have
a different meaning than that which is commonly understood
when they are used in this context. **
**Yankee Bond:**
Dollar-denominated bonds issued in the US by foreign banks
and corporations when the US market is more favorable than
the Eurobond market or domestic markets overseas.
**Yellow Sheets:**
Daily publication that provides bid and ask prices of corporate
bonds traded over the counter (OTC) and firms that are market
makers in the particular bond.
**Yield:** An investment's
return from dividends or interest expressed as a percentage
of either cost at purchase or the investment's current price.
For example, a security with a current market value of $36
a share paying a dividend of $2.50 annually will give an investor
a return of 7% ($2.50/$36.00).
**Yield Advantage:**
When an investor buys a corporation's convertible security
instead of its common stock, the yield advantage is the additional
amount of return an investor can earn. For example, if XYZ
Corporation's convertible security yields 12% and XYZ common
share yields 7%, the yield advantage is 5%.
**Yield Curve:**
Graph depicting the term structure of interest rates. It plots
the yields of bonds of the same class (corporates, governments,
etc.) and quality with maturities that range from the shortest
to the longest term. The yields are plotted on the y-axis,
and time to maturity on the x-axis. The curve will show whether
short-term interest rates are higher or lower than long-term
interest rates.
In general, the yield curve is positive. Investors usually
receive a higher yield for the extra risk of tying up their
money long term. However, if short-term rates are higher,
the curve is considered to be a "negative (or inverted)
yield curve". And, if a small variation exists between
short-term and long-term rates, the curve is considered to
be a "flat yield curve.” To make a sound judgment
about the direction of interest rates, fixed income analysts
and economists will carefully watch the yield curve.
**Yield Equivalence: **The
interest rate at which a taxable security and a tax-exempt
bond have the same rate of return. To calculate the tax equivalent
yield of a tax-exempt bond for investors in different tax
brackets, the tax-exempt yield is divided by the reciprocal
of the tax bracket (e.g., 100 less 28%). Thus, a person in
the 28% tax bracket who wants to know the tax equivalent yield
of a 8% tax free municipal bond would divide 8% by 72% to
get 11%--the yield a taxable security would have to return
to be equivalent, after taxes, to an 8% municipal bond. To
convert a taxable yield to a tax-exempt yield, the formula
is reversed--the tax-exempt yield is equal to the taxable
yield multiplied by the reciprocal of the tax bracket.
**Yield To Average Life:**
Calculation used, where bonds are retired systematically during
the life of the issue, as in a sinking fund. To satisfy its
sinking fund requirements the issuer will buy its bonds on
the open market. If the bonds are trading below par, there
is automatic price support for such bonds. Therefore, they
are apt to trade on a yield-to-average-life basis. In this
scenario, this yield calculation will be used instead of "yield
to maturity" or "yield to call."
**Yield To Call (YTC):**
Rate of return an investor earns from a bond assuming the
bond is called (redeemed) by the issuer on the first call
date specified in the indenture agreement prior to the bond's
maturity date. The formula used to calculate yield to call
is the same as "yield to maturity" except that the
principal value at maturity is replaced by the first call
price and the maturity date is replaced by the first call
date. The lower of the yield to call and the yield to maturity
will be used to determine an investor's realistic rate of
return.
**Yield To Maturity (YTM):**
The compound rate of return that investors will receive for
a bond with a maturity greater than one year if they hold
the bond to maturity and reinvest all cash flows at the same
rate of interest. It also takes into account purchase price,
redemption value, coupon yield, and the time between interest
payments. The YTM will be greater than the current yield when
the bond is selling at a discount and will be less if it is
selling at a premium. YTM can be approximated using a bond
yield table or can be determined using a programmable calculator
equipped for bond calculations.
YTM is used extensively in comparing fixed income investments,
making fixed income portfolio decisions, and in financial
planning.
**YLD (Yield):**
An investment's return from dividends or interest expressed
as a percentage of either cost at purchase or the investment's
current price. For example, a security with a current market
value of $36 a share paying a dividend rate of annually is
will give an investor said to return 7% ($2.50/$36.00).
**Yo-Yo Stock:**
Stock that has volatile price fluctuations and thus, rises
and falls like a yo-yo.
**YTC (Yield To Call):
**Rate of return an investor earns from a bond assuming
the bond is called (redeemed) by the issuer on the first call
date specified in the indenture agreement prior to the bond's
maturity date. The formula used to calculate yield to call
is the same as "yield to maturity" except that the
principal value at maturity is replaced by the first call
price and the maturity date is replaced by the first call
date. The lower of the yield to call and the yield to maturity
will be used to determine an investor's realistic rate of
return.
**YTM (Yield To Maturity):**
The compound rate of return that investors will receive for
a bond with a maturity greater than one year if they hold
the bond to maturity and reinvest all cash flows at the same
rate of interest. It also takes into account purchase price,
redemption value, coupon yield, and the time between interest
payments. The YTM will be greater than the current yield when
the bond is selling at a discount and will be less if it is
selling at a premium. YTM can be approximated using a bond
yield table or can be determined using a programmable calculator
equipped for bond calculations. YTM is used extensively in
comparing fixed income investments, making fixed income portfolio
decisions, and in financial planning.
I welcome
your **comments,
questions and suggestions. ****
** |