Accrued Interest - Interest that has accumulated on a bond but has not yet been paid to the investor.

Adjustable-Rate Bond - The coupon of an adjustable bond is reset, no more than once a year, based on a predetermined formula, usually linked to an index.

Ask Price - Price being sought for a bond by a seller.

Basis Point - One-one hundredth of a percent. It is used to describe differences in the yield of a bond.

Bid - The price at which a buyer will purchase a security

Bond Swap - A simultaneous sale and purchase of two different bonds, may be done to pick-up yield, extend maturity, etc.

Book-Entry - Recording and transferring ownership of bonds electronically.

Callable Bonds - Provision that allows the issuer to retire the issue before the scheduled maturity date. Callable bonds typically carry higher yields than bonds without a call provision.

Call Price - The Price at which a callable bond may be called, which is generally higher than the face value of the issue.

Cap - The top interest rate that can be paid on a floating-rate security.

CMO (Collateralized Mortgage Obligation) - Bonds backed by a pool of mortgage loans or mortgage pass-through securities.

Collar - Upper and lower limits on the interest of a floating bond.

Convertible Bond - Bond that can be exchanged for specific amounts of common stock in the issuing firm.

Coupon - denotes the periodic interest payment made to the bondholder during the life of the bond.

Credit Risk - The risk that an issuer may not be able to meet future principal and interest payments due to the specific financial impairment of the issuer; also known as default risk.

Current Yield - The ratio of the coupon to the current price of the bond, stated as a percentage. For example, a bond with a current market value of $1,000 that pays $85 per year and has a current yield of 8.5%.

CUSIP - Unique nine digit number assigned to a security.

Discount - The difference between the face value and market price of a security, when the market price of the security is less than the face.

Default - When an issuer fails to make timely payment of principal or interest.

Duration - Represents the price sensitivity of a security utilizing the weighted average term-to-maturity of a bonds' cash flows.

Federal Funds Rate - The interest rate at which banks can borrow money from other banks.

Floor - Lowest interest rate that can be paid on a floating-rate bond.

Hedge - Investments used to minimize the impact of adverse movements in the market.

High-Yield Bonds - Bonds issued by an entity with higher credit risk, rated Ba or BB and below. A higher yield is typically offered to offset the higher credit risk.

Inverse Floaters - Securities whose coupons move in the opposite direction of interest rates.

Investment Grade - Bonds issued by organizations with higher credit ratings, Baa or BBB or above.

Issuer - An organization which issues debt and is obligated to pay principal and interest or securities.

Junk Bond - Bond with a rating of Ba of BBB or below.

Leverage - Using borrowed capital to increase investing power.

Marketability - Measure of the ability to quickly buy or sell a security in the secondary market; also know as liquidity.

Maturity - The scheduled date at which the issuer repays the bondholder his (final) principal payment.

Mortgage Pass-Through Securities - A security that represents a direct interest in a mortgage pool. Payments are made to investors each month based on monthly mortgage payments.

Non-Callable Bonds - A bond which can not be called for redemption prior to the maturity date.

Par Value - The principle amount of a bond at maturity.

Premium - The amount paid for a security that exceeds the principal value.

Prepayment - The unscheduled payment of the principal amount on a mortgage or other debt prior to the maturity date.

Prepayment Risk - The risk that when interest rates fall, mortgages will be prepaid, forcing other investors to reinvest at lower interest rates.

Primary Market - The market for new issues.

Putable Bond - Allows the investor to sell the security back to the issuer at predetermined prices on designed dates.

Ratings - Designations used by Credit Rating Agencies indications of risk.

Rating Agencies - Agencies that rate organization's credit risks.

Reinvestment Risk - The risk that interest or principal income will be reinvested at lower rates if interest rates decline.

Secondary Market - The market where previously issued securities are sold.

Settlement Date - Date for delivery of securities and payment of funds.

Sinking Fund Provision - A schedule dictating the issuer to retire a certain amount of outstanding debt each year.

Swap Contract - An agreement, arranged by a third party, where one party exchanges a series of fixed cash flows for floating-rate cash flows from a secondary party.

Trade Date - Date when the purchase or sale of a bond is executed.

Yield - The annual percentage rate earned on a security.

Yield Curve - The imaginary line that connects an issuers' bond yields with those bond's maturities.

Yield-to-Call - Represents the rate of interest an investor will earn until the bond is called.

Yield-to-Maturity - Represents the rate of interest that equates the present value of all future principal and interest payments with the market price on the security.

Zero Coupon Bond - A bond that pays a coupon. Interest is imputed by purchasing the security below face value.