HomeMy WebLinkAbout5311 RESOLUTION iVO. 5 3 1_1
A RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF AUBURN, WASHINGTON, APPROVING
THE POLICY AND PROCEDURES FOR
INVESTMENT PRACTICES
WHEREAS, the City has various financial responsibilities related to its
many functions and activities; and
WHEREAS, the City has financial assets in various funds; and
WHEREAS, the City also has the practice of approving and endorsing
policies and procedures via resolution of the City Council; and
WHEREAS, in order to invest funds in a manner that will provide the
highest investment return with the maximum security while being responsive to
its financial obligations, it is appropriate that the City have a policy to define the
parameters and processes used for investment practices.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF AUBURN,
WASHINGTON, HEREBY RESOLVES as follows:
Section 1. That the policy and procedures for investment practices,
index number 100-40, a copy of which is attached hereto, marked as Exhibit "A"
and incorporated herein by this reference, is approved and the Mayor is
authorized to implement the same.
Se:ction 2. That the Mayor is further authorized ,to implement such
administrative procedures as may be necessary to carry out the directives of this
legislation.
Resolution No. 5311
August 4, 2017
Page 1 of 2
Section 3. That this Resolution shall take effect and be in full force
upon passage and signafures hereon.
S'� .
Dated and Signed this ��� day of � , 2017.
CITY OF AUBURN
_ .
ANCY US, MAYOR
ATTEST:
�
Danielle E. Daskam, City Clerk
APPROVED AS TO FORM:
��e���
_ _ _
niel B. Heid, City orney
Resolution No. 5311
Augusf 4, 2017
Page 2 of 2
EXHIBIT A
c�-rY oF �` �,�,;�'`�--.*,.* I TRATIVE
� � � ,� � � � � ADAAIIVS
�� �-= - POLICY AIVD PROCEDURE
� � WASHINGTON�
Tir�E' suB�ECT: INVESTMENTS
INVESTMENT POLICY
INDEX NUMBER: 'I 00-40
EFFECTIVE DATE SUPERSEDE& PAGE PREPARED BY: MAYOR'S APPROVAL
8/28/2017 4/10/2003 1 OF 10 SHELLEY COLEMAN
1.0 PURPOSE
It is the policy of the City of Auburn to invest public funds in a manner which will provide
maximum security, while meeting the daily cash flow demands, conforming to all state and local
statutes governing the investment of public funds, and providing a market rate of retucn through
budgetary and economic cycles.
2.0 SCOPE
This Investment Policy applies to all financial assets of the City of Auburn. These funds are
ac.counted for in the City's Comprehensive Annual Financial Report and include:
2.1 Funds:
2.1.1 General Fund
2.1.2 Special Revenue Funds
2.1:3 Debt Service Funds (Unless prohibited by Bond indentures)
2.1.4 Capital Projects Funds
2.1.5 Enterprise Funds
2.1.6 Internal Service Funds
2.1.7 Cemetery Endowed Care Fund
2.1.8 Fire Relief& Pension Fund
2.1.9 Any new fund created by Council, unless specifically exempted by Council.
Should bond covenants be more restrictive than this policy, funds shall be invested in
full compliance with those resfrictions.
3.0 REFERENCES
ACC 2.15
AC C 3.04.100
Auburn Ordinance No. 3034
RCW 35.39.030, RCW 35.39.034, RCW 43:250, RCW 39.58, and RCW 39.59
4.0 POLICY
4.1 Prudence: Investments shall be made with judgment and care--under circumstances
then prevailing--whieh persons of prudence, discretion, and intelligence exercise in the
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.
ADMINISTRATIVE TITLE: INDEX NO: PAGE:
POLICY AND PROCEDURE INVESTMENT POLICY 100-40 2 of 10
4.1.1 The standard of prudence to be used by the Director of Finance or any.
designees in the context of managing the overall portfolio is to be the "prudent
person" standard and shall be applied in the context of managing an overall
portfolio. Employees aeting in accordance with written procedures 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.
4.2 Obiective: The primary objectives, in priority order, of the City of Auburn's invesfinent
activity shall be:
4.2.1 Safety: Safety of principal is the foremost objective of the City of Auburn.
Investments of the City shall be undertaken in a manner that seeks to ensure the
preserva#ion of capital in the overall portfolio. To attain this objective,
diversification is required in order that potential losses on individual seeurities do
not exceed the income generated from the remainder of the portfolio.
4.2.2 Liquidity: The investment portfolio will provide liquidity sufficient to enable the
Cify to meet all cash requirements that might be reasonably anticipated. This is
accomplished by structuring the portfolio so that securities mature concurrent
with cash needs to meet anticipated demands.
4.2.3 Return on Investments: The City of Auburn's investment portfolio shall be
designed with the objective of attaining a market rate of return throughout.
budgetary and economic cycles, taking into account the City's investment risk
constraints and Iiquidity needs. Return on investments is of secondary
importance compared to fhe safety and liquidity objectives described above. The
core of investments is limited to relatively low risk securities in anticipation of
earning a fair rate of return relative to the risk being assumed: Securities shall
generally be held until mafurity with the following exceptions:
4.2.3.1 A security with declining credit may be sold early to minimize the loss of
principal.
4,2.3.2 A security swap would improve fhe quality, yield, or target duration of the
portfolio.
4.2.3.3 Liquidity needs of the portfolio require that the security be sold early:
4.3 Deleqation of Authoritv:
4.3.1 Authority to manage the City of Auburn's investment program is derived from
ACC 2.15 and Ordinance No. 30"34. Management responsibility for the
investment program is hereby delegated to the Finance Director; who shall
establish written procedures for the opecation of the investment program
consistent with this Investment Policy. No person may initiate investment
transactions except as provided under the terms of the policy and procedures
established by the Finance Director. The Finance Director shall be responsible
�
ADMINISTRATIVE TITLE: INDEX NO: PAGE:
POLICY AND PROCEDURE INVESTMENT POLICY 100-40 3 of 10
for all transactions undertaken and shall establish a system of controls to
regulate activities of City employees.
4.4 Ethics and Conflicts of Interest: Employees involved in the investment process shall
refrain from personal business activity that could conflict with proper execution of the
investment program, or which eould impair their ability to make impartial investment
decisions. They shall disclose to the Mayor and the State of Washington 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 portfolio, particularly with regard to the
time of purchase and sales.
4.5 Authorized Finance Dealers and Institutions: The Finance Director will maintain and
review annually a list of financial institutions authorized to provide investment services.
The City shall follow Government Finance Officers Association's (GfOA) best practices
for evaluating and selecting financial institution's and 6roker/dealers.
As required by state law (RCW 39:58), deposits and certificates of deposit will be made
only with, or from, those institwtions approved by the Washington Public Deposit
Protection Commission (PDPC) as eligible for deposit of public funds.
The City will only place funds, exceeding the current FDIC insurance limits, with banks
who are currently participating in the Washington State PDRC program. Compliance/
listing with the PDPC will be verified by the designated investment officer utilizing fhe
Washington State Treasurers website (http://tre.wa.qov/qovernment/pdpc.shtml)
The Finance Director annually adopts the eligibility list provided by the PDPC as fhe
approved depository list. These may include "primary" dealers or regional dealers that
qualify under Securities & Exchange Commission Rule 15c3-1 (uniform net capital cule).
No public deposit shall be made except in a qualifed public depository as established
by state laws.
Qualified broker/dealers and financial institutions will be reviewed and selected by the
Finance Director on a routine basis. AII brokers/dealers and financial institutions who
desire to do business with the City must supply the Finance Director with the following:
A; Audited Financial Reports. '
B. Froof of FINRA (Financial Industry Regulatory Authority) certification.
C. Proof of regisfration with the State of Washington.
D. Certification of having read Aubu.rn's Investment Policy.
E. Firms and financial institutions are expected to familiarize themselves with the
City of Auburn's investment objectives, policies, and constraints.
The Finance Director will conduet an annual review of the financial condition of the
firms. A current, audited financial statement is required to be on file for each financial
institution and broker/dealer wifh whom the City invests.
4.6 Authorized Investments: Eligible investments are only those securities and
deposits authorized by statute (RCW 39.58, 39.59, and 43.250).
ADMINISTRATIVE TITLE: INDEX NO: PAGE:
FOLICY AND PROCEDURE INVESTMENT POLICY 100-40 4 of 10
Among the authorized investments are U.S. Treasury and Agency Securities (i.e.
obligations of any government sponsored enterprise eligible for collateral purposes at
fhe Federal Reserve), municipal debt, or certificates of deposits with qualified public
depositories within stafutory limits as promulgated by the Washington State Local
Government Investment Pool.
Suifable Investments: _
4.6.1 US Treasury Obligations: Direct obligations of the United States
Treasury.
4.6.2 U.S..Government Agency obligations and U.S. Government Sponsored
Enterprises (GSE's) wh'ich may include, but are not limited to Federal
Farm Gredit Bank (FFCB), Federal Home Loan Bank (FHLB),
Government National Mortgage Association (GNMA), Federal Home
Loan Mortgage Corporation (FHLMC), Federal National Mortgage
Association (FNMA), Student Loan Marketing Corporation (SLMA),
and/or Tennessee Valley Authority (TVA).
4.6.3 Non-negotiable Certifica.tes of Deposit of financial institutions which are
qualified public depositories as defined by RCW 39.58.010(2) and in
accordance with the restrictions fherein.
4.6.4 Bonds of the State of Washington and any local government in the
State of Washington, General Obligation bonds outside the State of
Washington; at the time of investment, the bonds must have a rating of
AA- from S&P or Aa3 from Moody's, or higher. In the case of a split
rating, the lower rating of these two rating agencies will be used.
4.6.5 Washington State Local Government Investment Poo1 (LGIR) managed
by the Washington State Treasurer's Office.
4.6.6 Other investments authorized by law. ,
4.6.7 Time deposits and savings account deposits with PDPC approved
banks.
4.7 � Bank Collateralization: The PDPC makes and enforces regulations and
administers a program to ensure public #unds deposifed in banks and thrifts are
protected if a financial institution becomes insolvent. The PDPC appro�es which
banks and thrifts can hold state and local government deposits and monitors
collateral pledged to secure uninsured public deposits. Under RCW 39.58.240,
all public treasurers and other custodians of public funds are relieved of the
responsibility of executing triparty agreements, reviewing pledged securities, and
authorizing additions, withdrawals, and exchanges of collateral.
ADMINISTRATIVE TITLE: INDEX NO: PAGE:
POLIGY AND PROCEDURE INVESTMENT POLICY 100-40 5 of 10
4.8 Safe Keeping and Custodv:
4.8.1 Delivery vs. Payment; All trades of marketable securities will be executed by
delivery vs. payment (DVP) to ensu.re that securities are deposited with a third
party cu.stodian prior to the release of funds.
4:8:2 Safekeeping: Securities will be held by an independent third-party custodian
selected by the Finance Director. Safekeeping receipts will evidence all
transactions.
4.8.3 CD's: Certificates of deposit will be held by the Finance Director.
4.9 Diversification: The City will diversify its investments by security type and institution.
The following schedule provides the maximum holdings in any one type of investments
or with any one issuer.
� ' ts �" ' �SS�IP.I��V/0 '� ! 7- �.m ���k�2,�dn���a'�(I§�'�'�"�sl �
i sk�r : ��,�����s t ✓ y +e � �
�' ��� � IUla�xi�n�m �� ��per�� � Ratings Rat�ngsR����
�a�� �� ��� � � � �����`���`���� '�°!o of�' � Issue�'�, ��,� „e � k���
� r � � a a ��� � P
!�'�t�3�� � � .r � (i �"' 3 ' ' .�5�w, � ir t 6�
Issue,aTYp���,n, . ..�..k., . ��.�u��a�:Hnld[ngs . ...�'Type.:_ _..��,���rS�P ��`.,.���.a��y . � .Moody's���;��T
US��Treasu�� Obli �ations 100% No�ne N/A N/A
US Agency Securities 100% 30% Security must be Security must be
rated rated
__. _ ._ _ _ _
V1/ashin fon LGIP 100% None N/A N/A
_ _._ _ _
Bank Time 40% None Deposits in PDPC Deposits in PDPG
Deposits/Savings approved banks approved banks
Accounts
Certificates of Deposit 40% 10% Deposits in PDPG Deposits in PDPC
approued banks approved banks
State of Washington or 25% 10% AA- or higher Aa3 or higher
Local Government
Bonds
4.10 Maturities: To the extent possible, investments will be made to coincide with
anticipated cash flow requirements. Because of the inherent difficulfies in
accurately forecasting cash flow requirements, a portion of the portfolio should
be continuously invested in readily available funds such as the Local
Government Investment Pool, money market funds, and PDPC bank deposits
to ensure that appropriate liquidity is maintained to meet ongoing obligations.
4.10.1 To this extent, 20% of the portfolio, at the time of investment, will be comprised
of invesfinents maturing within a year.
4.10.2 Satisfying this requirement, remaining funds may be invested in authorized
securities not to exceed five years in maturity, except when compatible with a
specific funds investment needs.
ADMINISTRATIVE TITLE: INOEX NO: PAGE:
POLICY AND PROGEDURE INVESTMENT POLICY 100-40 6 of 10
4.10.3 To ensure additional Iiquidity and provide for ongoing market opportunity, the
weighted average maturity and modified duration of the portfolio shall not
exceed three years. This maximum is established to limit the portfolio to
excessive price change exposure.
4.10.4 Cemetery Endowed Care Fund, Fire Relief and Pension Fund, Reserves and
� GIP funds may be invesfed in securities exceeding five years if the maturity of
such investments is made to coincide as nearly as practicable with the expected
use of the funds.
4.11 Internal Control: The Finance Director shall establish a process of
independent review by an external auditor. This review will provide internal
control by assuring that policies and procedures are being complied with.
Such review may also result in recommendations to change operating
procedures to improve internal control. All investment procedures and
pracfices should be reviewed by an independent auditor at least annually. In
Washington, this review procedure is assured through the annual audit
process by the State Auditor's office.
4.12 Performance Standard/Benchmark: The investment portfolio shall be
designed with the objective of obtaining a rate of return throughout budgetary
and economic cycles, commensurate with the investment risk constraints and
the cash flow needs.
4.12.1 The basis used by the Finance Director to determine whether market yields are
being achieved shall be the six-month U.S. Treasury Bill.
4.13 Reportinq: The Finance Director is charged with the responsibility of including
a report on investment activity and returns in the City's quarterly financial
report.
4.14 Investment Policv Adoption: The City of Auburn's Investment Policy shall be
adopted by resolution of City Council. The policy shall be reviewed on an
annual basis by the Finance Director and any modificafions made thereto must
be approved by Council.
5.0 GLOSSARY
AGENCIES: Federal agency securities.
ASKEDc The price at which securities are offered.
BANKER' 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.
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.
ADMINISTRATIVE TITLE: INDEX NO: PAGE:
POLICY AND PROCEDURE INVESTMENT POLICY 100-40 7 of 10
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 ofher property which a borrower pledges to secure
repayment of a loan; also refers to securities pledged by a bank to secure deposits of public monies.
COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR): The official annual report for the City of
Auburn. It includes five combined statements and basic financial statements for each individual fund
_ _ _
and account group prepared in conformity with Generally Accepted Accounting Principles (GAAP). It
also includes supporting schedules necessary to demonstrate compliance wifh 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 broke�, acts as a princi.pal in all transactions, buying and selling
for their 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 versas receipt(also called free). Delivery versus payment is delivery of securities
with an exchange of a signed receipt for the securities.
DERIVATIVES: (1) Financial instruments wfiose return profile is linked to, or derived from, the
movement of one or more underlying index or security, and may include a leve�aging factor, o� (2)
financial contrasts 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 6etween the cost price of 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 at a
discount and redeemed at maturity for full face value, e.g., U.S.. Treasury bills.
DIVERSIFICATION: Dividing investment funds among a variety of securifies offering independent
returns.
FEDERAL CREDIT AGENCIES: Agencies of the federal government setup to supply credit to�arious
classes of institutions and individuals, e.g., S&L's, small business firms, students, farmers, farm
coo:peratives, and exporters.
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that insures bank
deposits, currently 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 operafions.
FEDERAL HOME LOAN BANKS (FHL-B): The institutions that regulate and lend to savings and loan
associations. The Federal Home Loan Banks play a role analogous to that played by fhe Federal
Reserve Banks vis-a-vis member commercial banks.
ADMINISTRATIVE TITLE: INDEX NO: PAGE:
POLICIf AND PROCEDURE INVESTMENT POLICY 100-40 8 of 10
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 & Urban Development (HUD). It is the largest single
pro�ider of residential mortgage funds in the United States. Fannie Mae; as the corporation is called, is
a private stoekholder-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.
FEDERAL OPEN MARKET COMMITTEE (FOMC): Consists of seven members of the Federal
Reserve Board and five of the twelve Federal Reserve Bank Presidents. The president of the New
York Federal Reserve Bank is a permanent member while the other Presidents serve on a rotating
basis. The committee periodically meets to set Federal Reserve guidelines regarding purchases and
sales of Governmenf Securities in the open market as a means of influencing the volume of bank credit
and money.
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., twelve regional banks, and
about 5,700 commercial banks that are members of the system.
GOVERNMENT iVATIONAL MORTGAGE ASSOCIATIOiV (GNMA or Ginnie Mae): Securities
guaranteed by GNMA and issued by mortgage bankers, cornmercial banks, savings and loan
associations, and other insfitutions. Security holder is protected by full faith and credit of the U.S.
Governrnent:
LIQUIDITY: A liquid asset is one that can be convertetl 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 GOVERiVMENT INVESTMENT POOL (LGIP): The aggregate of all funds from politieal
subdivisions that are placed in the custody of the 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 befinreen
the parties to repurchase--reverse repurchase 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 seeurities, you ask for an
offer.) See Asked and Bid.
OPEN MARKET OPERATIONS: Purchases and sales of government and certain other securities in
the open market by the New York Federal Reserve Bank as directed by the FOMC in order to influence
the volume of money and credit in the economy. Purchases inject reserves into the bank 5ystem and
ADMINISTRATIVE T�nE: INDEX NO: PAGE:
POLICY AND PROCEDURE INVESTMENT POLICY 100-40 9 of 10
stimulate growth of money and credit; sales have the opposite effect. Open market operations are the
Federal Reserve's most important and most flexible monetary policy tool.
PORTFOLIO: Collection of securities held by an investor.
PRIIIAARY DEALER: A group of government securities dealers that 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, 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 securifies selected by the state=-the so called legal
list. In other sta#es, 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 sales, compensating use, or ad valorem taxes under the laws of this state, which has
segregated for the benefts of the commission eligible collateral having a value of not less than its
maximum liability and which has been approved by the PDPC 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 an amortized yield to maturity on a bond or 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 compensafe the buyer 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 forthe purchase and sale ofioutstanding issues following the
initial distribution.
SECURITIES 8� EXCHANGE COMMISSION (SEC): Agency created by congress to protect investors
in securities transactions by administering securities legislation.
SEC RULE 15C3-1: See uniform net capital rule.
STRUCTURED NOTES: Notes issued by GSEs (FHLB, FNMA, SLMA, etc.) and corporations which
have imbedded options (e.g., call features, step=up coupons, floating rate coupons, derivatives-based
returns) into their debt structure. Their market pertormance is impacted by the fluctuation of interest
rates;the volatility of the imbedded options, and shifts in the shape ofithe yield eurve.
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 BOND: Long-term U.S. Treasury securities having initial maturities of more than ten
years.
ADMINISTRATIVE TITLE; INDEX NO: PAGE,:
POLICY AND PROCEDURE INVESTMENT POLICY 100-40 10 of 10
TREASURY NOTES: Intermediate term eoupon bearing U.S. Treasury securities having initial
maturities from one to ten years.
UNIFORM NET CAPITAL RULE: SEC requirement that member firms as well as nonmember broker-
dealers in securities maintain a maximum ratio of indebtedness to liquid eapital of 15 to 1; also called
net capital rule and net capital ratio. Indebtedness covers all money owed to a firm, including margin
loans and commitments to purchase securities, one reason new public issues are spread among
members of underwriting syndicates. Liquid capital inelude5 cash and assets easily conuerted into
cash.
YIELD: The annual rate of return on an investment, expressed as a percentage of the investment, (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.
YIELD TO MATURITY: The average annual yield on a security, assuming it is held to maturity; eq:uals
to the rate at which all principal and interest payments would be discounted to produce a present value
equal to the purchase prices of the bond.