Glossary (5)

  Glossary

Net operating-loss carryforward (NOL)—the carryforward of past losses for tax purposes, enabling a company to shield future income from taxation 

Net present value (NPV)—calculation of the value of an investment by discounting future estimates of cash flow back to the present 

Non-cash-pay securities—securities permitted to pay interest or dividends in kind or at a later date rather than in cash as due (see cash-pay securities, pay-in-kind, and zero-coupon bond) 

Nonrecourse—the lender looks only to the borrowing entity for payment 

Open end mutual fund—mutual fund offering to issue or redeem shares at a price equal to underlying net asset value 

Opportunity cost—the loss represented by forgone opportunities 

Option—the right to buy (call) or sell (put) specified items at specified prices by specified dates 

Over-the-counter (OTC)—the market for stocks not listed on a securities exchange (e.g., New York, American, Philadelphia, Boston, Pacific, Toronto) 

Par—the face amount of a bond; the contractual amount of the bondholder’s claim 

Pay-in-kind (PIK)—a security paying interest or dividends in kind rather than in cash 

Plan of reorganization—the terms under which a company expects to emerge from Chapter 11 bankruptcy 

Portfolio cash flow—the cash flowing into a portfolio net of outflows 

Portfolio insurance—a strategy involving the periodic sale of stock-index futures designed to eliminate downside risk in a portfolio at a minor up-front cost 

Post petition interest—interest accruing from the date of a bankruptcy filing forward 

Preferred stock—an equity security senior in priority to common stock with a specified entitlement to dividend payments 

Prepackaged bankruptcy—a technique whereby each class of creditors in a bankruptcy agree on a plan of reorganization prior to the bankruptcy filing 

Prepetition interest—interest accruing from the most recent coupon payment up to the date of a bankruptcy filing 

Price/earnings (P/E) ratio—market price of a stock divided by the annualized earnings per share 

Price-to-book-value ratio—market price of a stock divided by book value per share 

Principal— the face amount or par value of a debt security 

Principal-only mortgage security (PO)—principal payments stripped from a pool of mortgages which, in response to changes in interest rates, fluctuate in value in the same direction as conventional mortgages but with greater volatility 

Private-market value—the price that a sophisticated businessperson would be likely to pay for a business based on the valuation multiples paid on similar transactions 

Pro forma financial information —earnings and book value adjusted to reflect a recent or proposed merger, recapitalization, tender offer, or other extraordinary transaction 

Proxy contest—a fight for corporate control through the solicitation of proxies or the election of directors 

Prudent-man standard—the obligation under ERISA to restrict one’s investments to those a “prudent” (conservative) person would make (see Employee Retirement Income Security Act of 1974 (ERISA) 

Put option—a contract enabling the purchaser to sell a security at a fixed price on a particular date