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American Depository Receipt (ADR):  A security that represents shares of foreign stocks or bonds and is held in negotiable receipt form by the foreign correspondent bank of an American Depository Bank.
Ask Price:  The trading price proposed by the prospective seller of securities.
Bearer Bond:  A bond that is not registered as to principal or interest in the name of a particular owner. A bearer bond is as easily transferable as cash. The interest coupons from bearer bonds are payable to any holder.
Bid Price:  The price at which the market-maker will buy a security.
Bond:  A debit security that bears interest and promised repayment.
Call Provision:  A feature of bonds or preferred stock that allows the issuer to redeem part or all of an issue before it matures. Partial calls, in which the issuer redeems only part of an issue, are conducted by lottery.
Certificate:  The printed document that may be issued by a corporation as evidence of its obligation to the holder of the certificate. Certificates are issued for both stocks and bonds. Certificates are not issued to the holders of book-entry securities.
Certificate of Deposit:  A transferable receipt issued by a commercial bank in return for a customer's deposit of funds. The bank agrees to pay the amount deposited plus interest to the bearer on a specific future date.
Common Stock:  Securities that represent ownership in a corporation. Common Stock is the one type of security that must be issued by a corporation. The two most important stockholder rights are the voting right and dividend right. Common stockholder claims on corporate assets are subordinate to those of bondholders, preferred stockholders, and general creditors.
Common Trust Fund:  One of the two types of collective investment funds that banks are permitted to offer. A common trust fund is maintained exclusively for funds obtained in the bank's capacity as trustee, executor, administrator, guardian, or custodian under a Uniform Gifts to Minors Act.
Convertibility:  A feature offered on some bonds, debentures, and preferred stock that allows the holder to exchange the security for common stock at a stated conversion price or ratio.
Corporate Note:  A debt instrument under which a corporation promises to pay a specific amount at a stated future date, plus stated interest if any. The note specifies when that future date will be. A corporate note, unlike a corporate bond, requires not indenture.
Coupon:  Interest coupons are attached to a bearer bond when issued. The owner clips the coupon at the date stated on the coupon and presents it to the issuer's agent for payment. Coupons can be cashed by the bearer, so they must be guarded as carefully as cash.
CUSIP Number:  A number assigned through the uniform numbering system used to identify specific securities and their issuers. The CUSIP number appears on the certificate and in documents relating to securities processing. CUSIP stands for the committee that originally devised the numbering system, the Committee on Uniform Securities Identification Procedures.
Decedent:  A deceased person, usually referred to as a decedent in the context of a will or estate.
Default:  The failure of a borrower to pay a debt when due. When an issuer is unable to pay the holders of its debt securities and the interest or principal is due, it is said to be in default.
Dividend:  A proportion of net earnings paid periodically by the corporation to its stockholders as a return on their investment. Cash dividends are paid in cash, usually quarterly and often by check, and stock dividends are paid in additional shares of stock. Sometimes property dividends are paid; these are paid in the form of products or corporate property rather than cash or securities.
Equity:  Value of the stockholders' ownership of a corporation, equaling the difference between the company's total assets and its total liabilities. Equity includes preferred stock, common stock, retained earnings, and other surplus reserves. Equity is also called book net worth or total proprietorship.
Escrow:  An agency service offered by trust departments to individuals and corporations. The escrow agent safely keeps cash, securities, or documents until certain conditions called for in an agreement between two parties are met. Once the conditions are met, the escrow agent releases the assets according to the agreement.
Ex-Dividend Date:  On this date, usually two days prior to the dividend record date, the stock begins to trade in the market without a dividend. For securities purchased before the ex-date, the purchaser is entitles to the dividend. For securities purchased on or after the ex-date, the seller will receive the dividend. The ex-date is used for dividend payment purposes to reduce the confusion and errors in the payment process caused by changes in stock ownership.
Fannie Mae:  The Federal National Mortgage Association (FNMA) is a privately owned company that adds liquidity to the residential mortgage market by buying mortgages from the original lenders, such as banks, and selling securities representing interests in pools of those mortgages.
Federal Agency Securities:  Sold to the investing public, these securities are not direct obligations of the United States but carry some form of government guarantee or sponsorship. Funds raised by sales of these securities provide specialized credit for a variety of public needs, including housing, urban renewal, small business, the shipping industry, and foreign trade.
Fixed-Income Securities:  Interest bearing securities and preferred stock, which provide a predetermined amount of income to their holders.
Floating Rate:  An interest rate that is not a fixed percentage of principal. The issuer of floating rate debt typically "pegs" the future rate it will pay to the future rate of a basic short-term financial instrument -- for example, a U.S. Treasury issue -- and pays a small stated percentage above that rate.
Freddie Mac:  The Federal Home Loan Mortgage Corporation (FHLMC) supplies mortgage credit for residential housing, mostly through Federal Home Loan Banks. Issues bonds, debentures, notes and certificates.
General Obligation Bond (GO):  Municipal bond issued by any level of government below the federal level, backed by the full faith, credit, and taxing power of the issuer.
Ginnie Mae:  The Government National Mortgage Association or GNMA. A Corporation wholly owned by the U.S. government that busy mortgages from banks and other private lenders at prices better than market prices. Ginnie Mae issues and guarantees mortgage-backed bonds and pass-through certificates.
Income:  Interest, dividends, rents, or other money derived from the earning power of the principal.
Interest:  The amount paid by a borrower to a lender in exchange for the use of the lender's money for a period of time. Interest is paid on debt securities (bonds, notes, etc.) either in regular intervals or as a part of the lump-sum payment when the issue matures.
Issuer:  The corporation or individual that signs an evidence of obligation, such as a note, bond, or stock certificate, in return for which the issuer receives cash, goods, or services.
Liquidation:  The conversion of an asset to cash. In reality, a complex procedure whereby the assets of a corporation are sold and the net proceeds, after all expenses, are passed along to creditors, bondholders, and shareholders. Trade creditors are paid first, bondholders next, and finally, shareholders. Payments are made in accordance with the laws and contracts protecting each class of creditor.
Maturity:  The date specified in a note, bond, or other evidence of debt on which the debt is due and payable.
Money Market Fund:  A class of mutual funds that buys high-quality, short-term notes, acceptances, or certificates of deposit (usually 60 days or less) of many corporations and/or government entities, thereby diluting its risk if any one debtor should fail to repay the debt when due. The fund sells shares to investors, who receive regular payments of interest. The percentage of interest varies from period to period, based on the interest earned and the expenses paid by the fund during the period. The investor at any time can sell his shares back to the fund, usually receiving his exact original dollar investment plus any accrued unpaid interest to date. However, should the fund suffer a major loss, the shareholder has no guarantee that his investment will be repaid in full because money market funds do not carry federal deposit insurance.
Mortgage-Backed Securities:  Debt instruments that are backed by a pool of mortgages. Mortgage-backed certificates issued by Fannie Mae, for example, are secured by conventional mortgages and guaranteed as to interest and principal.
Municipal Bond:  A bond issued by a state or local government, or its agencies or authorities, or by possession or territory of the United States. Such bonds are often called "Munis." Another common name for these bonds is "tax-exempts" because interest paid on most issues is exempt from federal income taxes and also from state and local income taxes within the state of origin. Municipal bonds are not registered with the Securities and Exchange Commission, but must have a legal opinion printed on or attached to the certificate. A bond trustee, often a bank, authenticates each bond, receives funds to pay interest and repay principal, and safeguards the rights and interests of the bondholders under the indenture. The commercial side of the bank can serve as underwriter and dealer for municipal bonds.
Mutual Fund:  An open-end management investment company whose primary activity is investing in the securities of a variety of companies, the purpose being to diversify its portfolio. The stock-holders in a mutual fund buy their shares from and sell them back to the fund in a direct sale, not through a stock exchange. "Open-end" means that the mutual fund can increase its capitalization by selling new shares to the public.
Par Value:  In bonds, the Par Value is commonly called the Face Value, or the amount shown on the face of the bond. In stocks, the arbitrary value used primarily for bookkeeping purposes. The par value may be printed on the stock certificate, but it has no relation to the stock's market value.
Pass-Through Certificates:  Securities that represent undivided interests in pools of mortgages. Principal and interest payments from the mortgagors are passed-through to certificate holders as received. Because mortgagers may prepay mortgages, the pass-through payments to certificate holders fluctuate.
Payable Date:  The date established by the board of directors for payment of a dividend to the stockholders of record, usually 15 to 20 days after record date.
Preferred Stock:  One of the two major types of equity securities (Common Stock is the other type) that receives dividends before common stock, the rate of which is fixed at the time of issuance. If a corporation is liquidated, preferred stockholders are given preference to the company's assets ahead of common stockholders.
Principal:  The amount of debt or loan to be repaid, exclusive of interest charges.
Private Company:  A company whose shares are owned by a small number of investors, often members of a family.
Publicly Held Company:  A company whose common stock has been registered with the Securities and Exchange Commission and sold to the general public.
Record Date:  The date set by the directors of the corporation that determines the eligibility to receive the current declared dividend. All shareholders of record on the date set are entitled to the dividend.
Reverse Stock Split:  An action by which the issuer replaces outstanding, low-priced stock with a reduced number of shares, each at a higher proportionate market price. A reverse split can make the stock more attractive to investors who avoid low-priced stock in the belief that such securities are speculative.
Secondary Market:  The market in which securities are resold from one investor to another. Secondary market transactions occur on the securities exchanges or over-the-counter.
Securities:  Contracts under which a corporation agrees to make certain payments or give certain rights to the holders, who purchase the contracts by paying money to the corporation. The corporation can then use the money for its own purposes, subject to the terms of the contract. Securities are issued by corporations primarily to raise capital, and investors buy and sell them primarily to earn a profit or a gain.
Settlement Date:  The date on which securities delivery and payment are expected to complete a securities trade. The number of business days permitted between trade date and settlement date varies by type of security and by nature of the transaction.
Sinking Fund:  A provision in some bond issues that requires the issuer, during the life of the issue, to set money aside to repay maturing bonds. Periodically, some bonds are called and retired. using the money in the sinking fund to repay holders.
Spin-Off:  A corporation's action to sever part of its operations and create a separate company. Shares in the new company are issued to the corporation's stockholders. Shares of the two companies then trade separately.
Stock:  A general term meaning common and preferred stock. The term is also used for the stock certificates that evidence ownership.
Stock Certificate:  A printed and signed document that serves as proof of an investor's ownership of an equity security.
Stock Exchange:  An organized, regulated marketplace where officials of brokerage firms meet physically to buy and sell securities as directed by their customers.
Stock Split:  Division of an outstanding stock issue into a larger number of shares, each at a lower proportionate market price. The intent is to reduce the price per share, thus making the stock more affordable for investors and increasing trading activity.
Trade Date:  The date on which a securities trade is actually made or executed.
Treasury Bill (T-Bill):  A marketable Treasury security with a term of 1 year or less, sold on a discount basis in minimum denominations of $10,000 in book-entry-only form.
Treasury Bond:  A marketable Treasury obligation with a maturity ranging from 10 years to over 40 years. Newly issued T-bonds are registered, book-entry form.
Treasury Note:  An obligation of the federal government with a maturity of at least 1 year but not more than 10 years. Large-denomination notes are purchased by commercial banks, U.S. government agencies, and pension trust funds, for example.
Trustee:  The party responsible for preserving and managing the assets of a trust. A Trustee must fulfill a number of express and implied fiduciary responsibilities.
U.S. Savings Bonds:  A nonmarketable security issued by the U.S. Treasury. Several series are outstanding: E, H, EE, and HH.
User Reserved CUSIP:  A User Reserved CUSIP Number is any issue number where both the 4th and 5th digits contain a "9." These numbers have been reserved for the user's own internal use and do not qualify under the CUSIP Numbering system.
Warrant:  A certificate given to stockholders or bondholders by an issuer, allowing the holders to purchase a specific amount of its securities at a set price. A warrant can be sold to another investor if the holder chooses not to exercise the warrant.
Zero Coupon Bond:  Debt security that is offered initially by the issuer at a deep discount from face value. The final repayment at maturity covers principal and all interest payments for the life of the security. Holders pay taxes annually on accreted interest, even though they do not receive the proceeds of the bond until maturity.

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