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Decimalization
The quotation and trading of stock or bond prices in decimals, as opposed to fractions such as eighths.
Decision Break-Point Analysis
A type of sensitivity analysis that indicates the value at which a key variable will result in a negative NPV for an investment project.
Decision tree
Schematic way of representing alternative sequential decisions and the possible outcomes from these decisions.
Declaration
The Board of Directors motion to authorize dividend payments.
Declaration date
The date on which a firm's directors meet and announce the date and amount of the next dividend.
Dedicated capital
Total par value (number of shares issued, multiplied by the par value of each share). Also called dedicated value.
Dedicating a portfolio
Related: Cash flow matching
Dedication strategy
Refers to multiperiod cash-flow matching.
Deductible
An amount or period which must be deducted before an insurance payout or settlement is calculated.
Deductible contribution
Amount paid into an IRA, an employer-sponsored retirement plan, or other type of retirement plan for a particular tax year that is a deduction from income for tax purposes.
Deduction
An expense that is allowable as a reduction of gross_income by the IRS e.g., charity donations.
Deductive reasoning
Using known facts to draw a conclusion about a specific situation.
Deed of trust
See Also: Indenture
Deep in the money
A call option with an exercise price substantially below the underlying stock's market price. Also put option with an exercise price substantially above the underlying stock's market price. Often substantially below is defined as more than one strike price below (for calls)/above (for puts) the current value of the underlying security.
Deep out of the money
A call option with an exercise price substantially above the market price. Also put option with an exercise price substantially below the underlying stock's market price. Often substantially below is defined as more than one strike price below (for calls)/above (for puts) the current value of the underlying security.
Deep-discount bond
A bond issued with a very low coupon or no coupon that sells at a price far below par value. A bond that has no coupon is called a zero-coupon bond.
Default
The failure to make timely payment of interest or principal on a debt security or to otherwise comply with the provisions of a bond indenture. A breach of a covenant. In context of project financing, a technical default signals a project parameter is outside defined or agreed limits or a legal matter is not yet resolved.
Default interest
A higher interest rate payable after default.
Default premium
A differential in promised yield that compensates the investor for the risk inherent in purchasing a corporate bond that entails some risk of default. Often the premium is measured as the yield over and above a government bond yield of similar coupon and maturity.
Default risk
The risk that an issuer of a bond may be unable to make timely principal and interest payments. Also referred to as credit risk (as gauged by credit_rating_agencies).
Defeasance
The setting aside by a borrower of cash or bonds sufficient to service the borrower's debt. Both the borrower's debt and the offsetting cash or bonds are removed from the balance sheet. In securities trading, where a clearing house becomes counterparty to each side of a trade, after the trade has been agreed. This is necessary to facilitate netting, and reduce counterparty risk exposure. The term has become popular recently, because of the growth of central counterparty clearing services in European cash equities markets.
Defensive securities
Low-risk stocks or bonds that will provide a predictable and safe return on an investor's money.
Deferred account
A type of account that delays taxes on that account until some later date. An example is an IRA account.
Deferred annuities
Tax-advantaged life insurance products. Deferred annuities offer deferral of taxes with the option of withdrawing one's funds in the form of a life annuity.
Deferred call
A provision that prohibits the company from calling the bond before a certain date. During this period the bond is said to be call protected.
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