HomeMy Public PortalAboutResolution 07-07 Approval of an Investment PolicyRESOLUTION 07-7
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF McCALL, IDAHO,
RELATING TO THE APPROVAL OF AN INVESTMENT POLICY AND PROVIDING AN
EFFECTIVE DATE.
WHEREAS, the City has not previously had an investment policy; and
WHEREAS, the City is currently investing 100% in the Local Government Investment
Pool (LGIP); and
WHEREAS, the City auditors recommended that the City develop an investment
policy; and
WHEREAS, the City has investigated different options for investment policies; and
WHEREAS, the City's Investment Policy will provide a safe and productive vehicle to
invest City funds outside of the LGIP;
NOW, THEREFORE, BE IT RESOLVED:
1. That the City of McCall Investment Policy, attached as an exhibit, is hereby
approved.
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2. That this resolution shall be in full force e e�fe~61�iirl�ts passage and approval.
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Dated this 10th day of May 2007.
CITY OF MCCALL
Valley County„I{laho
By
William A. Robertson, Mayor
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CITY OF MCCALL
INVESTMENT POLICY
POLICY:
The purpose of this document is to provide guidelines for the prudent investment of the
City of McCall funds and to outline the policies needed to maximize the efficiency of the
City's cash management system.
The Treasurer shall invest idle public funds in a manner that recognizes that safety of
principal is the top priority. The primary duty and responsibility of the Treasurer is to
protect, preserve and maintain cash and investments placed in his/her trust on behalf of
the citizens of the community. The second priority is liquidity. It is the duty of the
Treasurer to maintain an adequate percentage of the portfolio in short-term securities,
which can be converted to cash if necessary to meet disbursement requirements. A high
yield on investments ranks third in priority in the City's investment strategy. Yield will
be considered only after the basic requirements of safety and liquidity have been met.
This strategy will be carried out in conformity with state statutes, local laws, and
applicable City Council ordinance and/or resolutions
SCOPE:
This investment policy applies to the following funds, which are accounted in the City's
Comprehensive Annual Financial Report and include:
1. General Fund
2. Special Revenue Funds
3. Debt Service Funds
4. Proprietary Funds
5. Any new fund created by the Council, unless specifically exempted by the Council (to
include Urban Renewal funds).
All monies entrusted to the Treasurer shall be invested in accordance with Idaho Code
50-1013.
This policy shall not apply to investments held by trustees of debt service reserves nor
shall it apply to investments held by the trustees of the City's IRS Code Sections 401 (a),
401(k) and 457 Deferred Compensation Plans. These funds shall be invested in
accordance with current bond indentures or contractual provisions of the program.
PRUDENCE:
The Treasurer shall invest public funds in the context of the "prudent person standard"
which states, "investments shall be made with judgment and care, under circumstances
then prevailing, which persons of prudence, discretion and intelligence exercise in the
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management of their own affairs, not for speculation, but for investment, considering the
probable safety of their capital as well as the probable income to be derived."
The Treasurer shall adhere to and be evaluated according to the "prudent person
standard" in the performance of his /her duties as the manager of public funds.
Additionally, investment officers acting in accordance with written procedures and the
investment policy, and exercising due diligence shall be relieved of personal
responsibility for an individual security's credit risk or market price changes, provided
deviations from expectations are reported in a timely fashion and appropriate action is
taken to control adverse developments.
INVESTMENT OBJECTIVE:
The primary objective of the City of McCall's Treasury is to safeguard government funds
while providing for adequate liquidity to meet the City's daily needs. The primary
objectives, in priority order of investment activities, shall be:
SAFETY:
Safety of principal is the foremost objective of the investment program. The portfolio
shall be diversified to ensure that potential losses on the individual securities do not
exceed the income generated from the remainder of the portfolio. Additionally, the
Treasurer shall ensure the safety of invested funds by limiting interest and credit rate
risks.
INTEREST RATE RISK:
The risk that the market value of the portfolio securities will fall due to an increase in
general interest rates:
Interest rate risk will be mitigated by:
i. Structuring the City's portfolio so that securities mature to meet the City's cash
demands for ongoing operations, thereby precluding the need to sell securities
on the open market prior to their maturity.
ii. Investing primarily in shorter -term securities.
CREDIT RISK:
The risk of loss due to the failure of the security or backer.
Credit risk will be mitigated by:
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i. Limiting investments to the types of securities authorized by this policy.
ii. Using pre -qualified financial institutions.
Diversifying the investment portfolio.
LIQUIDITY:
An adequate percentage of the portfolio shall be maintained in liquid short-term
securities, which can be converted to cash if necessary to meet disbursement
requirements. No investment shall be made in any security, which at the time of the
investment has a remaining term in excess of five years unless the Council has granted
express authority to make that investment.
YIELD:
Yield should become a consideration only after the basic requirements of safety and
liquidity have been met.
RETURN ON INVESTMENT:
The investment portfolio shall be designed to attain a best rate of return throughout
budgetary and economic cycles, taking into account the City's risk constraints, IRS
arbitrage rebate requirements, the cash flow characteristics of the portfolio and State
statutes, local laws, ordinances or resolutions that restrict investments. The City's
portfolio management approach is one, which prohibits speculation based on anticipated
interest rate movements. The City's approach is to buy investment with the intention of
holding the investment to maturity.
LEGAL REQUIREMENT:
The City's investment portfolio shall be designed with the objective of meeting all legal
requirements set forth by Federal, State and local laws.
DELEGATION OF AUTHORITY:
The responsibility for the investment program rests with the Treasurer. The Treasurer,
and/or those person(s) assigned by the Treasurer, will be responsible for all transactions
undertaken and has established a system of internal controls and standard operating
procedures to regulate the activities of subordinate officers.
INVESTMENT PROCEDURES:
Investment policy procedures as established by the Treasurer for the operation of the
investment program shall be consistent with this policy. The procedures include:
safekeeping, PSA repurchase agreements, wire transfer agreements, banking service
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contracts and collateral/depository agreements. Such procedures shall include explicit
delegation of authority to persons responsible for investment transactions. No person may
engage in an investment transaction except as provided under the terms of this policy and
the procedures established by the Treasurer.
INVESTMENT TRAINING:
The Treasurer shall attend at least one training session within twelve months after taking
office or being appointed, and at least annually thereafter. The training session should be
sponsored by a professional organization, such as, but not limited to: Government
Finance Officers Association (GFOA), Idaho City Clerks, Treasurers, and Finance
Officers Association (ICCTFOA), or Municipal Treasurers Association of the United
States & Canada (MTA, US&C). Training must include some or all of the following
components: investment controls, security risks, strategy risks, market risks, and
compliance with Federal, State and local laws.
ETHICS AND CONFLICTS OF INTEREST:
The Treasurer shall avoid any transaction that might impair public confidence in the
City's ability to govern effectively. Officers and employees involved in the investment
process shall refrain from business activity that could conflict with proper execution of
the investment program, or which could impair their ability to make impartial investment
decisions. Employees and investment officials shall disclose to the Council any material
financial interests in financial institutions that conduct business within this jurisdiction,
and they shall further disclose any large personal financial investment positions that
could be related to the performance of the City's portfolio. Employees and officers shall
subordinate their personal investment transactions to those of the City of McCall,
particularly with regard to the time of purchase and sales.
AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS:
The Treasurer will maintain a list of financial institutions authorized to provide
investment services. In selecting financial institutions for deposits or investment of City
funds, the Treasurer shall consider the creditworthiness of institutions. The Treasurer
shall continue to monitor financial institutions' credit characteristics and financial history
throughout the period in which City funds are deposited or invested.
A copy of the City's Investment Policy shall be provided to each approved financial
institution the City conducts business with. The Treasurer shall maintain a signed
agreement from each, agreeing to abide by the City's Investment Policy.
AUTHORIZED AND SUITABLE INVESTMENTS:
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The Treasurer and/or those person(s) assigned by the Treasurer shall invest money only
in those Investment Instruments allowed by Idaho Code 50-1013. Legal investments for
the City are as follows and shall be in U.S. dollar denominations:
(A) Revenue bonds issued pursuant to the Revenue Bond Act.
(B) City coupon bonds provided for under section 50-1019, Idaho Code.
(C) Local improvement district bonds provided under Chapter 17, Title 50, Idaho Code.
(D) Time deposit accounts with public depositories.
(E) Bonds, treasury bills, interest -bearing notes, or other obligations of the United States,
or those for which the faith and credit of the United States are pledged for the
payment of principle and interest.
(F) General obligation bonds of this state, or those for which the faith and credit of the
United States are pledged for the payment of principle and interest.
(G) General obligation bonds of any county, city, metropolitan water district, municipal
utility district, school district, or other taxing district of this state.
(H) Notes, bonds, debentures, or other similar obligations issued by the Farm Credit
System or institutions forming a part thereof under the Farm Credit Act of 1971
(V.S.C., Title 12, sections 2001-2259) and all Acts of Congress amendatory thereof
or supplementary thereto; in bonds or debentures of the Federal Home Loan Bank Act
(U.S.C., Title 12, Sections 1421-1449); in bonds, debentures, and other obligations of
the Federal National Mortgage Association established under the National Housing
Act (U.S.C., Title 12, Sections 1701-1750g)as amended, and in the bonds of any
federal home loan bank established under said act and in other obligations of agencies
and instrumentalities of the state of Idaho or the United States.
(I) Bonds, notes, or other similar obligations issued by public corporations of the state of
Idaho including, but not limited to, the Idaho state building authority, the Idaho
housing authority, and the Idaho water resource board, but such investment shall not
extend beyond seven (7) days.
(J) Repurchase agreements covered by any legal investment for the state of Idaho.
(K) Tax anticipation bonds or notes, income and revenue anticipation bonds or notes and
registered warrants of the state of Idaho or of taxing districts of the state of Idaho.
(L) Savings account including, but not limited to, accounts on which interest or dividends
are paid and upon which negotiable orders of withdrawal may be drawn and similar
transaction accounts.
(M) Time deposit. accounts and other savings accounts of state or federal savings and loan
associations located within the geographical boundaries of the state in amounts not to
exceed the insurance provided by the federal savings and loan corporation, including
but not limited to accounts on which interest or dividends are paid and upon which
negotiable orders of withdrawal may be drawn, and similar transaction accounts.
(N) Share, savings, and deposit accounts of state and federal credit unions located within
the geographical boundaries of the state in amounts not to exceed the insurance
provided by the national credit union share insurance fund and/or any other
authorized share guaranty corporation, including, but not limited to, accounts on
which interest or dividends are paid and upon which negotiable orders of withdrawal
may be drawn, and similar transaction accounts.
(0) Prime banker's acceptances.
(P) Prime commercial paper.
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(Q) Money market funds, mutual funds, or any other similar funds whose portfolios
consist of any allowed instrument as specified in this section.
(R) Local Government Investment Pool (LGIP), Idaho State Treasurer's office.
COLLATERALIZATION:
Collateralization will be required on two types of investments:
(1) Certificates of deposits.
(2) Repurchase agreements. Reverse repurchase agreement investments must have
Council approval. Any bank or savings and loan doing business with a the City must
provide dedicated collateral for any deposits it holds in excess of $100,000 insured by
The Federal Depository Insurance Corporation or Federal Savings & Loan Insurance
Corporation. The collateralization process requires securities that serve as collateral are
placed in a safekeeping account. The collateral must consist only of the following
securities: U.S. Treasury Bills, Notes, Bonds and federal agency securities, and/or the
government -guaranteed portion of certain government securities. Collateral will be
marked to market on the day of the transaction or otherwise protected against price
deterioration with over-collateralization of a minimum of 105%.
Collateral will always be held by an independent third party with whom the City has a
current custodial agreement. A clearly marked evidence of ownership, safekeeping
receipt, must be supplied to the City and retained by the Treasurer.
SAFEKEEPING AND CUSTODY:
All security transactions, including collateral agreements, entered into by the City shall
be conducted on a delivery -versus -payment (DVP) basis. A third party custodian
designated by the Treasurer will hold securities.
Repurchase agreements may be entered into on a safekeeping basis only if a master
agreement with the bank or trust department providing the safekeeping is first obtained
and it very clearly establishes that the bank/trust is acting as third party agent for the
Treasurer, not the financial institution arranging the repurchase agreements. Such third
party safekeeping arrangements will be documented with a signed agreement between the
Treasurer and that the financial institution does not have access to them under any
circumstances.
All securities owned by the City will be held by a third party except the collateral for
time deposits in banks and savings and loans. Collateral for time deposits in banks should
be held in the City's name in the bank's Trust Department, or alternately in the Federal
Reserve Bank. Collateral for time deposits in savings and loans is held by the Federal
Home Loan Bank or an approved Agent of Depository.
DIVERSIFICATION:
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It is the policy of the City to diversify its investment portfolio to avoid incurring
unreasonable and avoidable risks or loss resulting from over -concentration of assets in a
specific maturity, specific insurer, or specific class of securities, with the exception of
U.S. Treasury Securities and authorized pools. No more than 50% of the City's total
investment portfolio will be invested in a single security type or with a single financial
institution, with the exception of the Local Government Investment Pool, Idaho State
Treasurer's office, U.S. Treasury Securities and other authorized pools.
MAXIMUM MATURITIES:
Inasmuch as the first two objectives of the City's investment program are protection of
principal and adequate liquidity to provide for daily operating needs, the City will, to the
extent possible, attempt to match its investments with anticipated cash flow requirements.
INTERNAL CONTROL:
The City shall continue to require an annual independent audit of the financial statements.
During the course of the audit, the auditor shall perform such reviews of the Treasury's
internal controls (those controls designed to prevent loss of public funds arising from
fraud, employee error, misrepresentation of third parties, unanticipated changes in
financial markets, or imprudent actions by employees and/or officers of the City) as
deemed necessary by the auditors to express an opinion on the financial statements as a
whole. This review will test internal control by assuring compliance with the policies and
procedures and the adequacy of those policies and procedures.
PERFORMANCE STANDARDS:
The City's investment portfolio will be designed with the objective of exceeding the
average Federal Funds rate. The investment program shall seek to augment returns above
this threshold, consistent with risk limitations identified herein and prudent investment
principles.
The Treasurer's objective is to maximize the City's cash.
REPORTING:
The Treasurer shall provide such reports as may be required by law, resolution,
ordinance, or as may be required by the Mayor, City Council, or City Manager. In
addition, the Treasurer shall provide such reports as may be reasonably requested by
departments, boards, or commissions for which the Treasurer is investing funds.
INVESTMENT POLICY ADOPTION:
The City of McCall's Investment Policy shall be adopted by resolution of the City
Council. The City Treasurer shall review the policy annually. Any modifications made
thereto must be submitted to and approved by the City Council at a regular or special
Council meeting.
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GLOSSARY:
The glossary of terms for this policy shall be included in the City's Investment Policy
Procedures manual. The Treasurer shall update the glossary as needed.
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CITY OF MCCALL
INVESTMENT GLOSSARY
AGENCIES: Federal agency securities and/or Government -sponsored enterprises.
ASKED: The price at which securities are offered.
BANKERS' ACCEPTANCE (BA): A draft or bill or exchange accepted by a bank or
trust company. The accepting institution guarantees payment of the bill, as well as the
Issuer.
BENCHMARK: A comparative base for measuring the performance or risk tolerance of
the investment portfolio. A benclunark should represent a close correlation to the level of
risk and the average duration of the portfolio's investments.
BID: The price offered by a buyer of securities. (When you are selling securities, you ask
for a bid.) See Offer.
BROKER: A broker brings buyers and sellers together for a commission.
CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific maturity
evidenced by a certificate. Large -denomination CD's are typically negotiable.
COLLATERAL: Securities, evidence of deposit or other property which a borrower
pledges to secure repayment of a loan. Also refers to securities pledged by a bank to
secure deposits of public mollies.
COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR): The official annual
report for the City of McCall, includes five combined statements for each individual fund
and account group prepared in conformity with GAAP. It also includes supporting
schedules necessary to demonstrate compliance with finance -related legal and contractual
provisions, extensive introductory material, and a detailed Statistical Section.
COUPON: (a) The annual rate of interest that a bond's issuer promises to pay the
bondholder on the bond's face value. (b) A certificate attached to a bond evidencing
interest due on a payment date.
DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, buying
and selling for his own account.
DEBENTURE: A bond secured only by the general credit of the issuer.
DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities:
delivery versus payment and delivery versus receipt. Delivery versus payment is delivery
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of securities with an exchange of money for the securities. Delivery versus receipt is
delivery of securities with an exchange of a signed receipt for the securities.
DERIVATIVES: (1) Financial instruments whose return profile is linked to, or derived
from, the movement of one or more underlying index or security, and may include a
leveraging factor, or (2) financial contracts based upon notional amounts whose value is
derived from an underlying index or security (interest rates, foreign exchange rates,
equities or commodities).
DISCOUNT: The difference between the cost price of a security and its maturity when
quoted at lower than face value. A security selling below original offering price shortly
after sale also is considered to be at a discount.
DISCOUNT SECURITIES: Non -interest bearing money market instruments that are
issued a discount and redeemed at maturity for full face value, e.g., U.S. Treasury Bills.
DIVERSIFICATION: Dividing investment funds among a variety of securities offering
independent returns.
FEDERAL CREDIT AGENCIES: Agencies of the Federal government set up to
supply credit to various classes of institutions and individuals, e.g., S&L's, small business
firms, students, farmers, farm cooperatives, and exporters.
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that
insures bank deposits, cunently up to $100,000 per deposit.
FEDERAL FUNDS RATE: The rate of interest at which Fed funds are traded. This rate
is currently pegged by the Federal Reserve through open -market operations.
FEDERAL HOME LOAN BANKS (FHLB): Government sponsored wholesale banks
(currently 12 regional banks), which lend funds and provide correspondent banking
services to member commercial banks, thrift institutions, credit unions and insurance
companies. The mission of the FHLBs is to liquefy the housing related assets of its
members who must purchase stock in their district Bank.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA): FNMA, like
GNMA was chartered under the Federal National Mortgage Association Act in 1938.
FNMA is a federal corporation working under the auspices of the Department of Housing
and Urban Development (HUD). It is the largest single provider of residential mortgage
funds in the United States. Fannie Mae, as the corporation is called, is a private
stockholder -owned corporation. The corporation's purchases include a variety of
adjustable mortgages and second loans, in addition to fixed-rate mortgages. FNMA's
securities are also highly liquid and are widely accepted. FNMA assumes and guarantees
that all security holders will receive timely payment of principal and interest.
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FEDERAL RESERVE SYSTEM: The central bank of the United States created by
Congress and consisting of a seven member Board of Governors in Washington, D.C., 12
regional banks and about 5,700 commercial banks that are members of the system.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA or Ginnie
Mae): Securities influencing the volume of bank credit guaranteed by GNMA and issued
by mortgage bankers, commercial banks, savings and loan associations, and other
institutions. Security holder is protected by full faith and credit of the U.S. Government.
Ginnie Mae securities are backed by the FHA, VA or FmHA mortgages. The term "pass-
throughs"is often used to describe Ginnie Maes.
LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash
without a substantial loss of value. In the money market, a security is said to be liquid if
the spread between bid and asked prices is narrow and reasonable size can be done at
those quotes.
LOCAL GOVERNMENT INVESTMENT POOL (LGIP): The aggregate of all funds
from political subdivisions that are placed in the custody of the Idaho State Treasurer for
investment and reinvestment.
MARKET VALUE: The price at which a security is trading and could presumably be
purchased or sold.
MASTER REPURCHASE AGREEMENT: A written contract covering all future
transactions between the parties to repurchase -reverse repurchase agreement that
establishes each party's rights in the transactions. A master agreement will often specify,
among other things, the right of the buyer -lender to liquidate the underlying securities in
the event of default by the seller -borrower.
MATURITY: The date upon which the principal or stated value of an investment
becomes due and payable.
MONEY MARKET: The market in which short-term debt instruments (bills,
commercial paper, bankers' acceptances, etc.) are issued and traded.
OFFER: The price asked by a seller of securities. (When you are buying securities, you
ask for an offer.) See Asked and Bid.
PORTFOLIO: Collection of securities held by an investor.
PRIMARY DEALER: A group of government securities dealers who submit daily
reports of market activity and positions and monthly financial statements to the Federal
Reserve Bank of New York and are subject to its informal oversight. Primary dealers
include Securities and Exchange Commission (SEC) -registered securities broker -dealers,
banks, and a few unregulated firms.
PRUDENT PERSON RULE: An investment standard. In some states the law requires
that a fiduciary, such as a trustee, may invest money only in a list of securities selected by
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the custody state -the so-called legal list. In other states the trustee may invest in a security
if it is one which would be bought by a prudent person of discretion and intelligence who
is seeking a reasonable income and preservation of capital.
QUALIFIED PUBLIC DEPOSITORIES: A financial institution which does not claim
exemption from the payment of any sales or compensating use or ad valorem taxes under
the laws of this state, which has segregated for the benefit of the commission eligible
collateral having a value of not less than its maximum liability and which has been
approved by the Public Deposit Protection Commission to hold public deposits.
RATE OF RETURN: The yield obtainable on a security based on its purchase price or
its current market price. This may be the amortized yield to maturity on a bond the
current income return.
REPURCHASE AGREEMENT (RP OR REPO): A holder of securities sells these
securities to an investor with an agreement to repurchase them at a fixed price on a fixed
date. The security "buyer" in effect lends the "seller" money for the period of the
agreement, and the terms of the agreement are structured to compensate him for this.
Dealers use RP extensively to finance their positions. Exception: When the Fed is said to
be doing RP, it is lending money that is increasing bank reserves.
SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities
and valuables of all types and descriptions are held in the bank's vaults for protection.
SECONDARY MARKET: A market made for the purchase and sale of outstanding
issues following the initial distribution.
SECURITIES & EXCHANGE COMMISSION: Agency created by Congress to
protect investors in securities transactions by administering securities legislation.
SEC RULE 15C3-1: See Uniform Net Capital Rule.
TREASURY BILLS: A non -interest bearing discount security issued by the U.S.
Treasury to finance the national debt. Most bills are issued to mature in three months, six
months, or one year.
TREASURY BONDS: Long-term coupon -bearing U.S. Treasury securities issued as
direct obligations of the U.S. Government and having initial maturities of more than 10
years.
TREASURY NOTES: Medium -term coupon -bearing U.-S. Treasury securities issued as
direct obligations of the U.S. Government and having initial maturities from two to 10
years.
UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement
that member firms as well as nonmember broker -dealers in securities maintain a
maximum ratio of indebtedness to liquid capital of 15 to 1; also called net capital rule and
net capital ratio. Indebtedness covers all money owed to a firm, including margin loans
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and commitments to purchase securities, one reason new public issues are spread among
members of underwriting syndicates. Liquid capital includes cash and assets easily
converted into cash.
YIELD: The rate of annual income return on an investment, expressed as a percentage.
(a) INCOME YIELD is obtained by dividing the current dollar income by the current
market price for the security. (b) NET YIELD or YIELD TO MATURITY is the current
income yield minus any premium above par or plus any discount from par in purchase
price, with the adjustment spread over the period from the date of purchase to the date of
maturity of the bond.
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