Accrued Interest- the amount of interest paid by the buyer of a bond to
the seller for interest earned by the seller, but paid in
the future to the buyer by the bond issuer.
Bond Laddering- staggering investment maturities in an effort to reduce interest rate risk.
Callable Bonds- a bond feature that allows the issuer to retire or redeem
a bond issue prior to the maturity date. Call dates are
often predetermined.
CMO (Collateralized Mortgage Obligation)- mortgage-backed-
securities classed by
tranches.
Coupon Rate- the interest rate an issuer promises to pay.
CD(Certificate of Deposit)- issued by banks which normally pay interest.
Dated Date-the first day that interest begins to accrue on a new issue
of bonds.
Discount Bond- a bond purchased below 100 or par.
Exchange Traded Fund- an investment vehicle that trades like a stock, but offers the diversification of a mutual fund without the excessive fees.
Factor-a decimal between 0 and 1 that represents the amount of
mortgage principal remaining in a pool of mortgage-backed-
securities.
Fannie Mae-Federal National Mortgage Association which issues
mortgage-backed-securities.
Freddie Mac- Federal Home Loan Mortgage Corporation which issues
mortgage-backed-securities.
General Obligation (GO) Bond-a municipal bond issue whose issuer
has the ability to pay interest and
principal with its full taxing power.
Ginnie Mae-Government National Mortgage Association which issues
mortgage-backed-securities that are guaranteed by the
agency.
Index Ratio- the ratio used to calculate the value of a Treasury Inflation-Protected
Security (TIPS) representing the accumulation of inflation added to the value of the TIP. Interest is paid on the adjusted value using the index ratio.
Mortgage-Backed-Securities- a pool of mortgages bundled into a
single security.
Municipal Bond- a bond issued by a local or state government which
usually pays interest.
Par Value- a bond trading at its face value or 100 ($1,000 per bond).
Premium Bond- a bond purchased above 100 or par.
Revenue Bond- a municipal bond issue whose issuer has the ability
to pay interest and principal with the revenue generated
from a specific project.
Sallie Bond- Student Loan Marketing Association.
Sinking Fund- money accumulated in a separate fund in order to
redeem bonds possibly earlier than the maturity date.
Step-Up Coupon- a bond or certificate of deposit issue that has a
schedule of increasing (step-up) interest rate payments.
Treasury Inflation-Protected Security- a U.S.Treasury issued security that pays
interest with the added protection against inflation by matching the Consumer Price Index (CPI).
Yield- the rate of return from an investment.
Yield to Call- the rate of return for a bond calculated usually to the
nearest call date.
Yield to Maturity- the rate of return for a bond calculated to the
maturity date.
Zero Coupon Bond- a bond that pays interest at maturity.
