Financial Glossary XYZ
Xenocurrency is currency that trades outside of its own borders.
Yankee bonds are bonds issued in dollars in the United States by overseas companies and governments. The purpose is to raise more money than the issuers may be able to borrow in their home markets, either because there is more money available for investment in the United States, or because the interest rate the issuers must pay to attract investors is lower. US investors buy these bonds as a way to diversify into overseas markets without the potential drawbacks of currency fluctuation, foreign tax, or different standards of disclosure that may be characteristic of other markets.
Yield is the rate of return on an investment expressed as a percent. Yield is usually calculated by dividing the amount you receive annually in dividends or interest by the amount you spent to buy the investment.In the case of stocks, yield is the dividend you receive per share divided by the stock’s price per share. With bonds, it is the interest divided by the price you paid. Current yield, in contrast, is the interest or dividends divided by the current market price.In the case of bonds, the yield on your investment and the interest rate your investment pays are sometimes, but by no means always, the same. If the price you pay for a bond is higher or lower than par, the yield will be different from the interest rate. For example, if you pay $950 for a bond with a par value of $1,000 that pays 6% interest, or $60 a year, your yield is 6.3% ($60 ÷ $950 = 0.0631). But if you paid $1,100 for the same bond, your yield would be only 5.5% ($60 ÷ $1,100 = 0.0545).
A yield curve shows the relationship between the yields on short-term and long-term bonds of the same investment quality. Since long-term rates are characteristically higher than short-term rates, a yield curve that confirms that expectation is described as positive. In contrast, a negative yield curve occurs when short-term rates are higher.A flat or level yield curve occurs when the rates are substantially the same.
Also known as yield ratio. The yield gap compares the dividend yield on equities with the yield on long-term government bonds. It is used to assess whether equities are under or over-priced compared with government bonds.
Yield to maturity (YTM)
Yield to maturity is the most precise measure of a bond’s anticipated return and determines its current market price. YTM takes into account the coupon rate and the current interest rate in relation to the price, the purchase or discount price in relation to the par value, and the years remaining until the bond matures. Although YTM figures are complex to calculate, brokers will supply this information if you ask, or you can use a calculator programmed to provide YTM figures.
Zacks Investment Research
This Chicago-based company tracks changes in earnings estimates, as well as buy, sell, and hold recommendations for approximately 5,000 stocks. The information is provided by more than 3,500 financial analysts at more than 210 brokerage firms.Based on its research, Zacks compiles consensus earnings estimates, industry group reports, and company reports that are widely followed by both individual and institutional investors. The service is available to all investors by subscription.
A zero-sum market is one in which one investor’s profit mirrors another investor’s loss. For every dollar one person makes, someone else loses a dollar. Commodities and options markets are examples of zero-sum markets. Stock markets are not.
Zero-coupon bonds, sometimes known as zeros, are issued at a deep discount to par value and pay no interest during their term. At maturity, the bondholder receives par value, which includes the interest that has accrued since issue. For example, you may purchase a zero-coupon bond with a six-year term for $13,500, and collect $20,000 at maturity. One advantage of zeros is that you can invest relatively smaller amounts and choose maturity dates to coincide with times you know you’ll need the money — for example, when you expect college tuition bills to come due. One drawback of zeros, however, is that income taxes are due annually on the interest that accrues, even though you don’t receive the actual payment until the bond matures. The exception occurs if you buy tax-exempt municipal zeros, on which no tax is due either during the term or at maturity. Another drawback is that zero coupon bonds are volatile in the secondary market, so if you have to sell before maturity, you might have a loss.These bonds get their name — zero coupon — from the fact that coupon means interest in bond terminology, and there’s no periodic interest.
Zero-coupon convertible bond
A zero-coupon convertible bond, like other convertible bonds, can be converted into stock in the issuing corporation if the stock reaches the trigger price.Municipalities may issue tax-exempt zero-coupon convertible bonds you can exchange before maturity for conventional taxable bonds. The advantage of both taxable and tax-exempt zero-coupon convertibles is that they give you access to a potentially substantial gain for a small initial investment since you purchase the zero-coupon for less than the face value. But like all zero-coupons, these convertibles tend to be more volatile in the secondary market than nonconvertible bonds.
Zero coupon swap
An interest rate swap in which the floating rate payments are made periodically while the fixed rate payments are paid in a single, lump sum payment. Normally, the lump sum payment is made when the contract matures. But it can be made at the beginning of the contract in which case it would be known as a reverse zero coupon swap. If the lump sum payment is deferred until maturity the present value of the payment is normally adjusted to reflect the greater credit risk involved. Zero coupon swaps can be structured so that both floating and fixed rate payments are paid as a lump sum.
Zero coupon yield curve
A yield curve of zero coupon bonds. Market practice is often to derive this curve theoretically from the par yield curve, also known as a spot yield curve.
Last Updated: December 26th, 2014