GlossaryG–17credit products into securities that
can be sold to public investors.selling short Borrowing a security
and selling it for cash at the current
market price. A short seller hopes that
either: (1) the price of the security
sold short will fall; or (2) the return on
the security sold short will be lower
than the return on the asset in which
the proceeds from the short sale were
invested.semiannual compounding Interest
compounds twice a year.seniority The order in which
repayments must be made to
investors, in the event of loan
defaults, liquidations, bankruptcy or
similar negative events. In general,
bondholders (or debt investors) must
be repaid before equity investors;
senior debt must be repaid before
subordinated debt and preferred
equity must be repaid before
ordinary equity. This is why equity
investment is considered much riskier
than debt investment. It is said to be
junior to debt.sensitivity analysis Exploration of the
impact of individual assumptions on
a decision variable, such as a project’s
NPV, by determining the effect of
changing one assumption while
holding all others fixed.serial bonds Bonds of which a certain
portion mature each year.
settlement date The date on which
the buyer pays the seller and the
seller delivers the asset to the buyer.
In a forward contract, this will be an
agreed date in the future.
settlement price The price used to
settle all contracts at the end of each
day’s trading. Also called the closing
futures price or settle price.settle price The price used to settle
all contracts at the end of each day’s
trading. Also called the closing futures
price or settlement price.
shareholder Owner of ordinary or
preferred shares in a company.
share issue privatisation (SIP) A
government executing one of these
will sell all or part of its ownership
in a stateowned enterprise to private
investors via a public share offering.
share option plans Plans set up to
provide share options to newly-hired
managers of portfolio companies
in order to give them incentives to
manage the company to create value.
share options Outright grants of shares
to top managers, or, more commonly,
giving them the right to purchase
shares at a fixed price.
share purchase warrants Instruments
that give their holder the right to
purchase a certain number of shares
of a company’s ordinary shares at a
specified price during a certain period
of time.
share repurchase programs Programs
in which companies will buy some of
their own shares over a period of time,
usually on the open market.
share split A transaction in which a
company increases the number of
outstanding shares by issuing new
shares to existing shareholders.
short position To sell an option or
another security.
signalling model Assumes that
managers use dividends to convey
positive information to poorly
informed shareholders.
simple interest Interest paid only on
the initial principal of an investment,
not on the interest that accrues in
earlier periods.
sinking fund A provision in a bond
indenture that requires the borrower
to make regular payments to a third-
party trustee for use in repurchasing
outstanding bonds, gradually over time.
sole proprietorship A business with a
single owner.speculative bonds Bonds rated below
investment grade (also known as high-
yield bonds or junk bonds).
speculative motive A motive for
holding, typically in short-term
as well as long-term investments,
funds that are currently unneeded
or can be used to quickly take
advantage of opportunities that may
arise.
spin-off A parent company creates a
new company with its own shares
to form a division or subsidiary, and
existing shareholders receive a pro
rata distribution of shares in the new
company.
split-off A parent company creates
a new, independent company with
its own shares, and ownership is
transferred to certain shareholders
only, in exchange for their shares in
the parent.
split-up The division and sale of all of
a company’s subsidiaries, so that it
ceases to exist.
spot exchange rate The exchange rate
that applies to immediate currency
transactions.
spot price The price that the buyer
pays the seller in a current, cash
market transaction.
spread The difference between the
rate that a lender charges for a loan
and the underlying benchmark
interest rate. Also called the credit
spread.
staged financing Method of investing
venture capital in a portfolio company
in stages, over time.
stakeholders Those with a justified
interest in, or claim on, a company,
such as customers, employees,
suppliers, creditors and shareholders.
stand-alone companies Companies
created for the sole purpose of
constructing and operating a single
project.