**Bond**

An interest bearing security for which the issuer agrees to pay the bondholder a specified sum of money, usually at specific intervals. That issuer can be the federal government (as in the case of Treasury bonds) or a local government (municipal bonds), government sponsored enterprises (like Fannie Mae), companies (corporate bonds) or even foreign governments or international corporations. The investor, or bond buyer, generally receives regular interest payments on the loan until the bond matures or is "called," at which point the issuer repays you the principal. Zero-coupon bonds pay both the imputed interest and the principal at maturity.

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**Bond CUSIP**

The security identifier number used throughout the
financial community to identify a bond.

**Convertible**

Issues of bonds with an option allowing the bondholder to exchange the bond for a specified number of shares or common stock in the firm. This is disclosed at the time the bond is issued.

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**Convertible Hedge**

Convertible bonds covering short calls and short common stock.

Rules: Before pairing can occur, the securities must be converted into the quantity they represent for the underlying security using the specific conversion ratio for each one. After conversion, if the total strategy requirements are greater than the naked requirements, the hedge should not be used.

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**Convexity**

A measure of the curvature of the relationship between bond prices and yields. It is typically used in conjunction with duration, to approximate the rate of change in a bond's price given a change in interest rates. Convexity can be used to improve the estimate of the percentage price change obtained using duration, particularly for a large change in interest rates.

Mathematically, it is the first derivative of modified duration and the second derivative of price with respect to yield.

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**Convexity to Worst**

Convexity to Worst is the convexity of a bond computed using the bond's nearest call date or maturity, whichever comes first. This measure ignores future cash flow fluctuations due to embedded optionality.

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**Corporate Bond**

A debt security issued by a private corporation. Interest is taxable and is generally paid according to a __coupon rate__ set at the time the bond is issued. Generally have a face value of $1,000 and a specific maturity date.

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**Coupon, Coupon Interest**

The interest rate a bond's issuer promises to pay to the bondholder until
maturity, or other redemption event, generally expressed as an annual percentage of the bond's face value.

For example, a bond with a 10% coupon will pay $100 per $1000 of the bond's face value per year, subject to credit risk.

When searching Fidelity's secondary market fixed income offerings, customers can enter a minimum coupon, maximum coupon, or enter both to specify a range and refine their search. When viewing Fidelity's fixed-income search results pages, the term "Step-Up" instead of a numeric coupon rate means the coupon will step up, or increase over time at pre-determined rates and dates in the future. Clicking Step-Up will reveal the step-up schedule for that security.

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**Coupon Type**

Identifies how a bond's coupon is impacted during the life of that security. Examples are Fixed, Variable, Step, etc

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**Coupon Frequency**

The frequency with which a fixed-income security pays interest (e.g., quarterly, semi-annually, yearly). See also payment schedule

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**Coupon Rate**

A bond's annual interest rate, expressed as a percentage of the bond's face value.

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**Implied Volatility**

For underlyings, the average volatility using options from the front two months.

For options, Implied Volatility is the market's best guess of future volatility, and it is obtained by entering the current option price into an option pricing model and finding this unknown volatility on an iterative basis. Volatility is the only unknown factor in traditional option pricing models like the Black-Scholes model and therefore must be estimated. Implied Volatility is calculated by determining the amount of volatility that would result in the current option price given the current time until expiration, interest rates, dividends, stock price, and strike price.

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**Implied Volatility Index Call **

This is a specially designed, vega-weighted average of implied volatility using only call options.

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**Implied Volatility Index Put **

This is a specially designed, vega-weighted average of implied volatility using only put options.

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**Option Adjusted Duration**

Bond prices typically move in the opposite direction to changes in interest rates. If interest rates rise, bond prices usually fall (and vice versa). Duration is a measure that helps approximate the degree of price sensitivity of a bond to changes in interest rates. Although stated in years, duration is often explained as an estimate of the percentage price change of a bond in response to a one percent change in interest rates. Bonds with higher duration have greater sensitivity to changes in interest rates and will generally experience a more significant drop in value as interest rates rise. For bonds with embedded options (for example callable or puttable bonds), the duration measure must be adjusted to account for the fact that the bond's embedded options may change the expected cash flows of the bond. For example, if a bond is called, interest payments cease and principal is returned earlier than the bond's maturity. The option-adjusted measure of duration is referred to as Option Adjusted Duration (OAD).

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**Option Adjusted Spread**

A bond's yield is typically comprised of two components: 1) the yield on a similar benchmark security (typically Treasury securities) and 2) a premium above the yield on a similar benchmark security which seeks to compensate an investor for the credit risk associated with a particular bond. This premium is referred to as yield spread or simply "spread." For bonds with embedded options (for example callable or puttable bonds), the spread measure must be adjusted to account for the fact that the bond's embedded options may change the expected cash flows of the bond. For example, if a bond is called, interest payments cease and principal is returned earlier than the bond's maturity. The option-adjusted measure is referred to as Option Adjusted Spread (OAS).

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**Option Adjusted Yield**

Option Adjusted Yield is calculated by adding/(subtracting) the value of a call option/(put option) to the bond's market price to obtain the price of an otherwise equivalent but option-free bond. The yield that equates this new higher/(lower) price to the bond's cash flows to maturity is the Option Adjusted Yield.

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**Spread**

A type of multi-leg __options__ trade order that 1) is the simultaneous purchase and sale of either __calls__ or __puts__, and 2) consists of options with different __strike prices__ and/or expiration months. For example, 1) buy 1 IBM FEB 65 call, and 2) sell 1 IBM JAN 70 call. To place a spread order, you must have a Margin Agreement on file with Fidelity and be approved for option trading level 3 or higher.

Concerning stock option grants, this is the difference between a stock option's grant price and the fair market value for the underlying stock. For example, if your grant price was $10 per share and the fair market value for the security was $30 per share, your spread would be $20 per share.

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**Spread to Treasuries**

The difference in yield between the offered yield of the bond you are researching and the yield
of its Treasury of similar maturity.
The spread is measured in basis points (1/100 of a percentage point).

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The relationship between interest rates and time, determined by plotting the yields of all or as many bonds of similar credit quality (eg: Treasuries or AA-rated Corporates), against their maturities. Yield curves typically slope upward since longer maturities normally have higher yields, although it can be flat or even inverted.

**Yield to Maturity**

The
rate of return an investor receives if an investment is held to the maturity date.