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Accreted Value:
The current value of your zero-coupon municipal bond, taking into account interest that has been accumulating and automatically reinvested in the bond.
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Accretion Bond:
Often the last tranche in a CMO, the accretion bond, or Z-tranche, receives no cash payments for an extended period of time until the previous tranches are retired. While the other tranches are outstanding, the Z-tranche receives credit for periodic interest payments that increase its face value but are not paid out. When the other tranches are retired, the Z-tranche begins to receive cash payments that include both principal and continuing interest.
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Accrual Bond:
Often the last tranche in a CMO, the accrual bond or Z-tranche receives no cash payments for an extended period of time until the previous tranches are retired. While the other tranches are outstanding, the Z-tranche receives credit for periodic interest payments that increase its face value but are not paid out. When the other tranches are retired, the Z-tranche begins to receive cash payments that include both principal and continuing interest.
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Accrued Interest:
(1) The dollar amount of interest accrued on an issue, based on the stated interest rate on that issue, from its date to the date of delivery to the original purchaser. This is usually paid by the original purchaser to the issuer as part of the purchase price of the issue; (2) Interest deemed to be earned on a security but not yet paid to the investor.
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Active Tranche:
A CMO tranche that is currently paying principal payments to investors.
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Ad Valorem Tax:
[Latin: to the value added] A tax based on the value (or assessed value) of real property.
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Adjustable-Rate Mortgage or ARM:
A mortgage loan on which interest rates are adjusted at regular intervals according to predetermined criteria. An ARM’s interest rate is tied to an objective, published interest rate index.
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Advance Refunding:
A financing structure under which new bonds are issued to repay an outstanding bond issue prior to its first call date. Generally, the proceeds of the new issue are invested in government securities, which are placed in escrow. The interest and principal repayments on these securities are then used to repay the old issue, usually on the first call date.
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Agency Security:
Debt security issued or guaranteed by an agency of the federal government or by a government-sponsored enterprise (GSE). These securities include bonds and other debt instruments. Agency securities are only backed by the "full faith and credit" of the U.S. government if they are issued or guaranteed by an agency of the federal government, such as Ginnie Mae. Although GSEs such as Fannie Mae and Freddie Mac are government-sponsored, they are not government agencies.
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Agency Transaction:
A sale and purchase of bonds in which the dealer places bonds with the buyer on a commission basis rather than selling bonds that the dealer owns.
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Agreement Among Underwriters - AAU:
Legal document used principally in negotiated sales by underwriters. The document consists of the instructions, terms and acceptances, and the standard terms and conditions.
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All or None - AON:
Where the offer or of a block of bonds will only sell all of the available bonds and not only a portion of them.
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Allotment:
Distribution of bonds to syndicate members by the book running manager.
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Alternative Minimum Tax - AMT:
An alternative way of calculating income under the Internal Revenue Code. Interest on private-activity bonds [other than 501(c)(3) obligations] issued after August 7, 1986, is used for such a calculation.
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Amortization:
Liquidation of a debt through installment payments.
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Arbitrage:
In the municipal market, the difference in interest earned on funds borrowed at a lower tax-exempt rate and interest on funds that are invested at a higher-yielding taxable rate. Under the 1986 Tax Act, with very few exceptions, arbitrage earnings must be rebated back to the federal government.
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Arbitrage Certificate:
Transcript certificate evidencing compliance with the limitations on arbitrage imposed by the Internal Revenue Code and the applicable regulations.
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Ascending or Positive Yield Curve:
The interest rate structure which exists when long-term interest rates exceed short-term interest rates.
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Ask Price:
Price being sought for the security by the seller. Also called the offer.
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Ask Yield:
The return an investor would receive on a Treasury security if he or she paid the ask price.
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Assessed Valuation:
The value of property against which an ad valorem tax is levied, usually a percentage of “true” or “market” value.
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Asset Allocation:
A strategy for maximizing gains while minimizing risks in your investment portfolio. Specifically, asset allocation means dividing your assets on a percentage basis among different broad categories of investments, including stocks, bonds and cash.
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Asset Class:
Different categories of investments that provide returns in different ways are sometimes described as asset classes. Stocks, bonds, cash and cash equivalents, real estate, collectibles and precious metals are among the primary asset classes.
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Auction:
Sealed-bid public sale of Treasury securities; method of determining the rate or yield.
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Auction Rate Bonds:
Floating-rate tax-exempt bonds where the rate is periodically reset by a dutch auction.
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Authority:
A separate state or local governmental issuer expressly created to issue bonds or run an enterprise, or to do both. Certain authorities issue bonds on their own behalf, such as transportation or power authorities. Authorities that issue bonds on the behalf of qualified nongovernmental issuers include health facilities and industrial development authorities.
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Authorizing Resolution:
Issuer document which states the legal basis for debt issuance, and states the general terms of the financing.
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Average Life:
On a mortgage security, the average time to receipt of each dollar of principal, weighted by the amount of each principal prepayment, based on prepayment assumptions.
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