HomeMy WebLinkAbout24438 RESOLUTION NO. 24438
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PALM
SPRINGS, CALIFORNIA, ADOPTING AN INVESTMENT POLICY
GOVERNING THE INVESTMENT OF CITY FUNDS AND
SUPERCEEDING RESOLUTION NO. 24241.
THE CITY COUNCIL FUNDS, APPROVES, AND RESOLVES AS FOLLOWS:
SECTION 1. The City Council finds the Investment Policy is consistent with the City's
commitment to safeguarding public funds; and
SECTION 2. The City of Palm Springs Investment Policy, attached as Exhibit A and
incorporated by reference, is hereby adopted; and
SECTION 3. Resolution No. 24241 is hereby superseded in its entirety.
ADOPTED THIS 6T" DAY OF JUNE, 2018.
David H. Ready, Esq.,
A T: City Manager
A y J. tl�
City Clerk
CERTIFICATION
STATE OF CALIFORNIA )
COUNTY OF RIVERSIDE ) ss.
CITY OF PALM SPRINGS )
I, ANTHONY J. MEJIA, City Clerk of the City of Palm Springs, hereby certify that
Resolution No. 24438 is a full, true and correct copy, and was duly adopted at a regular meeting
of the City Council of the City of Palm Springs on June 6, 2018, by the following vote:
AYES: Councilmembers Holstege, Kors, Middleton, Mayor Pro Tern Roberts, and
Mayor Moon
NOES: None
ABSENT: None
ABSTAIN: None
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City
of Palm Springs, California, this ' i- day of:��, 2 L s
MT14ONY IA,
CITY CLER
CITY OF PALM SPRINGS
INVESTMENT POLICY AND GUIDELINES
1.0 Purpose:
The purpose of this policy statement is to set forth the investment and operational policies for the
management of the public funds of the City of Palm Springs, California. These policies have
been adopted by, and can be changed only by, a majority vote of the City Council.
These policies are designed to ensure the prudent management of public funds, the availability of
operating and capital funds when needed, and an investment return competitive with those of
comparable funds and financial market indexes.
A copy of this statement will be provided to all investment dealers and investment managers
doing business with the City of Palm Springs, and will be provided to other interested parties on
request. Receipt of this policy, including confirmation that it has been reviewed by persons
dealing directly with the City of Palm Springs' account will be received prior to any organization
providing investment services to the City of Palm Springs.
2.0 Policy:
The investment practices and policies of the City of Palm Springs are based upon state law and
prudent money management. The primary goals of these practices are:
A. To ensure compliance with all Federal, State, and local laws governing the investment of
public funds under the control of the Director of Finance/Treasurer.
B. To protect the principal of monies entrusted to the City's Finance Department.
C. Achieve a reasonable rate of return within the parameters of prudent risk management while
minimizing the potential for capital losses arising from market changes or issuer default.
3.0 Scope:
This Investment Policy applies to all financial assets of the City of Palm Springs. These funds
are accounted for in the City's Comprehensive Annual Financial Report.
The Director of Finance/Treasurer is responsible for investing the unexpended cash in the City
Treasury for all funds, except for the employee's retirement funds or deferred compensation
accounts, which are administered separately, and those funds which are managed separately by
trustees appointed under indenture agreements.
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These funds include, but are not limited to:
• General Fund
• Special Revenue Funds
• Capital Project Funds
• Debt Service Fund
• Enterprise Funds
• Internal Service Funds
• Trust and Agency Funds
• Bond Proceeds
• Any new fund created by the legislative body, unless specifically exempted
This Investment Policy applies to all transactions involving the financial assets and related
activity of the foregoing funds.
4.0 Prudence:
The standard of prudence to be used by the Director of Finance/Treasurer shall be the "prudent
investor standard." This shall be applied in the context of managing an overall portfolio. The
"prudent investor standard" shall be applied to the City, pursuant to California Government
Code Section 53600.3 which provides, in pertinent part:
" ... all governing bodies of local agencies or persons authorized to make
investment decisions on behalf of those local agencies investing public funds
pursuant to this chapter are trustees and therefore fiduciaries subject to the
prudent investor standard. When investing, reinvesting, purchasing, acquiring,
exchanging, selling, or managing public funds, a trustee shall act with care, skill,
prudence, and diligence under the circumstances then prevailing, including, but
not limited to, the general economic conditions and the anticipated needs of the
agency, that a prudent person acting in a like capacity and familiarity with those
matters would use in the conduct of funds of a like character and with like aims,
to safeguard the principal and maintain the liquidity needs of the agency...."
4.1 Personal Responsibility:
The Director of Finance/Treasurer, as the investment officer 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 to the City Council in a timely fashion and appropriate
action is taken to control adverse developments.
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5.0 Objective:
Consistent with this aim, investments are made under the terms and conditions of California
Government Code Section 53600, et seq. Criteria for selecting investments and the absolute
order of priority are:
Safety
Safety of principal is the foremost objective of the investment program. Investments of the City
of Palm Springs shall be undertaken in a manner that seeks to ensure the preservation of capital
in the overall portfolio. To attain this objective, diversification is required in order that potential
losses on individual securities do not exceed the income generated from the remainder of the
portfolio.
Liauidity
The City of Palm Springs's investment portfolio will remain sufficiently liquid to enable the City
to meet all operating requirements which might be reasonably anticipated and to maintain
compliance with any indenture agreement, as applicable. Liquidity is essential to the safety of
principal.
Return on Investments
The City of Palm Springs's investment portfolio shall be designed with the objective of attaining
a market-average rate of return throughout budgetary and economic cycles (market interest
rates), within the City's Investment Policy's risk parameters and the City's cash flow needs. See
also Section 16.1.
6.0 Delegation of Authority:
The Director of Finance/Treasurer shall be responsible for all transactions undertaken and shall
establish a system of controls to regulate the activities of subordinate officials. The
responsibility for the day-to-day investment of City funds will be delegated to the Deputy
Treasurer or other Department of Finance staff member as determined by the Director of
Finance/Treasurer and who is under the general direction of the Director of Finance/Treasurer.
Procedures should include references to: wire transfer agreements, and collateral/depository
agreements, as appropriate. 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 Director of Finance/Treasurer. The Director of Finance/Treasurer shall be responsible for all
transactions undertaken and shall establish a system of controls to regulate the activities of
subordinate officials. Under the provisions of California Government Code 53600.3, the Director
of Finance/Treasurer is a trustee and a fiduciary subject to the prudent investor standard.
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7.0 Ethics and Conflicts of Interest:
Consistent with state statutes and regulations and the City's local policies relating to conflicts of
interest, all persons involved in the investment process shall refrain from personal 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 officers
are required to file annual disclosure statements as required for "public officials who manage
public investments" [as defined and required by the Political Reform Act and related regulations,
including Government Code Sections 81000, et seq., and the rules, regulations and guidelines
promulgated by California's Fair Political Practices Commission (FPPC)].
8.0 Authorized Financial Dealers and Institutions:
The City's Director of Finance/Treasurer will maintain a list of the financial institutions and
brokers/dealers authorized to provide investment and depository services and will perform an
annual review of the financial condition and registrations of qualified bidders and require annual
audited financial statements to be on file for each company. The City shall annually send a copy
of the current Investment Policy to all financial institutions and brokers/dealers approved to do
business with the City.
As far as possible, all money belonging to, or in the custody of, a local agency, including money
paid to the City's Director of Finance/Treasurer or other official to pay the principal, interest, or
penalties of bonds, shall be deposited for safekeeping in state or national banks, savings
associations, federal associations, credit unions, or federally insured industrial loan companies in
this state selected by the City's Director of Finance/Treasurer; or may be invested in the
investments set forth in Section 9.0. To be eligible to receive local agency money, a bank,
savings association, federal association, or federally insured industrial loan company shall have
received an overall rating of not less than "satisfactory" in its most recent evaluation by the
appropriate federal financial supervisory agency of its record of meeting the credit needs of
California's communities, including low- and moderate-income neighborhoods.
To provide for the optimum yield in the investment of City funds, the City's investment
procedures shall encourage competitive bidding on transactions from approved brokers/dealers.
In order to be approved by the City, the dealer must meet the following criteria: (i) the dealer
must be a "primary" dealer or regional dealer that qualifies under Securities and Exchange
Commission Rule 150-1 (Uniform Net Capital Rule); (ii) the dealer's institution must have an
office in California; (iii) the dealer must be experienced in institutional trading practices and
familiar with the California Government Code as related to investments appropriate for the City;
and (iv) all other applicable criteria, as may be established in the investment procedures. All
brokers/dealers and financial institutions who desire to become qualified bidders for investment
transactions must submit a "Broker/Dealer Application" and related documents relative to
eligibility including a current audited annual financial statement, U4 form for the broker, proof
of state registration and proof of National Association of Securities Dealers certification. The
City's Financial Director/Treasurer shall have also have received a signed Certification from the
firm of having read and understood the City's Investment Policy and agreeing to comply with the
Investment Policy. The City's Director of Finance/Treasurer shall determine if they are
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FEDERAL AGENCIES
Obligations issued by banks for cooperatives, federal land banks, federal intermediate credit
banks, federal home loan banks, the Federal Home Loan Bank Board, the Tennessee Valley
Authority, or in obligations, participations, or other instruments of, or issued by, or fully
guaranteed as to principal and interest by, the Federal National Mortgage Association; or in
guaranteed portions of Small Business Administration notes; or in obligations, participations, or
other instruments of, or issued by, a federal agency or United States government-sponsored
enterprise.
• Maximum Maturity: 5 Years
• Maximum Percentage of Portfolio: 60%
BANKERS' ACCEPTANCES
Bills of exchange or time drafts drawn on and accepted by a commercial bank, typically created
from a letter of credit issued in a foreign trade transaction. Eligibility is limited to U.S. banking
corporations.
• Maximum Maturity: 180 Days
• Maximum Percentage of Portfolio: 20%
• Maximum Exposure: 5%per bank
• Credit Requirement: A-1, P-1, F-1 (Per S&P/Moody's/Fitch)
COMMERCIAL PAPER
Commercial Paper ranked A-1, P-1, F-1 by one of the major rating agencies and issued by a
domestic corporation having assets in excess of$500,000,000 and having an "A" or better rating
on its long term debentures as determined by a recognized national rating agency.
• Maximum Maturity: 270 Days
• Maximum Percentage of Portfolio: 15%
• Credit Requirement A-1, P-1, F-1 (Per S&P/Moody's/Fitch)
NEGOTIABLE CERTIFICATES OF DEPOSIT
Negotiable certificates of deposit issued by a nationally or state-chartered bank, a savings
association or a federal association, a state or federal credit union, or by a state-licensed branch
of a foreign bank.
• Maximum Maturity: 5 Years
• Maximum Percentage of Portfolio: 30%
• Maximum Exposure: 5%per Issuer
• FDIC-insured up to $250,000
• Credit Requirement if over$250,000: A-1, P-1, F-1 (Per S&P/Moody's/Fitch)
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The California Government Code Section 53601 (p) permits public agencies to invest in "shares
of beneficial interest issued by a joint powers authority organized pursuant to Section 6509.7 that
invests in the securities and obligations authorized in subdivisions (a) to (o), inclusive. Each
share shall represent an equal proportional interest in the underlying pool of securities owned by
the joint powers authority. To be eligible under this section, the joint powers authority issuing
the shares shall have retained an investment adviser that meets all of the following criteria:
(1) The adviser is registered or exempt from registration with the Securities and Exchange
Commission; (2) The adviser has not less than five years of experience investing in the securities
and obligations authorized in subdivisions (a) to (o), inclusive; and (3) The adviser has assets
under management in excess of five hundred million dollars ($500,000,000)."
• Duration: Less than 1 year; Maximum Percentage of Portfolio: 50%
• Duration: More than 1 year; Maximum Percentage of Portfolio: 25%
TIME DEPOSITS-CERTIFICATES OF DEPOSIT (non-negotiable certificates of deposit.)
Time deposits, non-negotiable and collateralized in accordance with the California Government
Code, may be purchased through banks or savings and loan associations with an "A" or better
rating.
• Maximum Maturity: 1 Year
• Maximum Percentage of Portfolio: 10%
• Maximum Exposure: $500,000 per Issuer
THE LOCAL AGENCY INVESTMENT FUND (LAIF)
A pooled investment fund managed by the State Treasurer's Office, which operates like a money
market fund for the exclusive benefit of governmental entities within California.
• Maximum of Portfolio: Maximum set by LAIF
9.1 Bond Proceeds
In addition to the investment vehicles enumerated in Section 9.0, the proceeds of bond issues
(including reserve funds) may be invested in long term Guaranteed Investment Contracts (GIC)
or Investment Agreements (IA) that comply with the Permitted Investment restrictions of the
particular bond issue.
Before soliciting bids from providers of GIC's or IA's, the Director of Finance/Treasurer shall
obtain approval from the City Council to proceed.
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9.2 Investment Pools:
The City's Director of Finance/Treasurer or designee shall be required to investigate all local
government investment pools and money market mutual funds prior to investing and performing
at least a quarterly review thereafter while the City is invested in the pool or the money market
fund. LAIF is authorized under provisions in Section 16429.1 of the California Government
Code as an allowable investment for local agencies even though some of the individual
investments of the pool are not allowed as a direct investment by a local agency.
9.3 Prohibited Investments:
Under the provisions of California Government Code Sections 53601.6 and 53631.5, the City of
Palm Springs shall not invest any funds covered by this Investment Policy in supranationals,
inverse floaters, dual index, stepped inverse derivatives, repurchase agreements, reverse
repurchase agreements, range notes, interest-only strips derived from mortgage pools or any
investment that may result in a zero interest accrual if held to maturity.
9.4 Social Responsibility:
The City shall not knowingly make any investments in any institution, company, corporation,
subsidiary, or affiliate that practices or supports directly or indirectly through its actions,
discrimination on the basis of race, religion, color, creed, national or ethnic origin, age, sex,
sexual orientation, or physical disability, as this is not in accordance with the City of Palm
Springs policies regarding discrimination.
Investments are encouraged in entities that support community well-being through safe and
environmentally sound practices and fair labor practices. Investments are encouraged in entities
that support equality of rights regarding race, religion, color, creed, national or ethnic origin, age,
sex, sexual orientation, or physical disability. Investments should be made to the extent
reasonable under the circumstances that such socially responsible investments meet minimum
permitted requirements by state law, and achieve substantially equivalent safety, liquidity, and
yield when compared to similar investments permitted by state law.
Prior to making investments the City's Director of Finance/Treasurer's office will reasonably
verify an entity's support of the socially responsible goals listed above through direct contact or
through the use of a third party resource.
10.0 Portfolio Adjustments:
Should any investment listed in section 9.0 exceed a percentage-of-portfolio limitation due to an
incident such as fluctuation in portfolio size, the affected securities may be held to maturity to
avoid losses. If because of the City's cash flow needs, it becomes necessary to sell and
investment prior to maturity (either at a profit or loss), the Director of Finance/Treasurer shall
first obtain written approval for the transaction from the City Manager.
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INVESTMENT POLICY AND GUIDELINES
When no loss is indicated, the Director of Finance/Treasurer shall consider reconstructing the
portfolio basing his or her decision on the expected length of time the portfolio will be
unbalanced. If this occurs, the City Council shall be notified at the earliest opportunity but not
later than the next regularly scheduled Council Meeting.
11.0 C ollateralization:
Under provisions of the California Government Code, California banks and savings and loan
associations are required to secure the City's deposits by pledging government securities with a
value of 110 % of principal and accrued interest. California law also allows financial institutions
to secure City deposits by pledging first trust deed mortgage notes having a value of 150% of the
City's total deposits. Collateral will always be held by an independent third party. The market
value of securities that underlay a repurchase agreement shall be valued at 102% or greater of the
funds borrowed against those securities and the value shall be adjusted no less than quarterly.
Since the market value of the underlying securities is subject to daily market fluctuations, the
investments in repurchase agreements shall be in compliance if the value of the underlying
securities is brought back up to 102% no later than the next business day. The Director of
Finance/Treasurer, at his or her discretion, may waive the collateral requirement for deposits that
are fully insured up to $250,000 by the Federal Deposit Insurance Corporation. The right of
collateral substitution is granted.
12.0 Safekeeping and Custody:
All City investments shall identify the City of Palm Springs as the registered owner, and all
interest and principal payments and withdrawals shall indicate the City of Palm Springs as the
payee. All securities shall be safe kept with the City itself or with a qualified financial
institution, contracted by the City as a third party. All agreements and statements will be subject
to review annually by external auditors in conjunction with their audit. In the event that the City
has a financial institution hold the securities, a separate custodial agreement shall be required.
All securities shall be acquired by the safekeeping institution on a "Delivery-Vs-Payment"
(DVP) basis.
13.0 Diversification:
The City's investment portfolio will be diversified to avoid incurring unreasonable or avoidable
risks associated with concentrating investments in specific security types, maturity segment, or in
individual financial institutions. With the exception of U.S. Treasury securities and authorized
pools, no more than 50% of the total investment portfolio will be invested in a single security
type or with a single financial institution. In addition, no more than 10% of the investment
portfolio shall be in securities of any one issuer except for U.S. Treasuries and U.S. Government
Agency issues.
A. Credit risk, defined as the risk of loss due to failure of the insurer of a security, shall be
mitigated by investing in those securities with an "A" or above rating and approved in the
Investment Policy and by diversifying the investment portfolio so that the failure of any one
issuer would not unduly harm the City's cash flow.
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B. Market risk, defined as the risk of market value fluctuations due to overall changes in the
general level of interest rates, shall be mitigated by structuring the portfolio so that securities
mature at the same time that major cash outflows occur, thus eliminating the need to sell
securities prior to their maturity. It is explicitly recognized, however, that in a diversified
portfolio, occasional measured losses are inevitable and must be considered within the
context of overall investment return. The City's investment portfolio will remain sufficiently
liquid to enable the City to meet all operating requirements which might be reasonably
anticipated.
14.0 Maximum Maturities:
To the extent possible, the City will attempt to match its investments with anticipated cash flow
requirements. Unless matched to a specific cash flow, the City will not directly invest in
securities maturing more than five (5) years from the date of purchase, unless, the City Council
has granted express authority to make that investment either specifically, or as a part of an
investment program approved by the City Council.
Further, the weighted average maturity of the pooled portfolio shall not exceed 3 years (1,095
days) and maturities are subject to the following limitations:
Maturity Ranize Minimum Maximum
1 day to 365 days $8,000,000 N/A
1 year to 3 years N/A 50%
3 years to 5 years N/A 30%
The maximum percentages may be adjusted to reflect the anticipated shorter duration of certain
investments that may likely be called prior to their stated maturity date
15.0 Internal Control:
The Director of Finance/Treasurer shall establish a system of internal controls designed to
prevent loss of public funds due to fraud, employee error, misrepresentation by third parties, or
unanticipated market changes. No investment personnel may engage in an investment transaction
except as provided for under the terms of this Investment Policy and the procedure established by
the Director of Finance/Treasurer.
The external auditors shall annually review the investments with respect to the Investment
Policy. This review will provide internal control by assuring compliance with policies and
procedures for the investments that are selected for testing. Additionally, account reconciliation
and verification of general ledger balances relating to the purchasing or maturing of investments
and allocation of investments to fund balances shall be performed by the Finance Department
and approved by the Director of Finance/Treasurer. To provide further protection of City funds,
wiring of any City funds is prohibited without the authorization of one of the following
designated City staff:
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NEGOTIABLE CERTIFICATES OF DEPOSIT: Unsecured obligations of the financial
institution, bank or savings and loan, bought at par value with the promise to pay face value plus
accrued interest at maturity. They are high-grade negotiable instruments, paying a higher interest
rate than regular certificates of deposit.
OFFER: The price asked by a seller of securities. (When you are buying securities, you ask for
an offer).
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 system and 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.
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 the custody
state-the so - called "legal list". In other states, the trustee may invest in a security if it is one
that would be bought by a prudent person of discretion and intelligence who is seeking a
reasonable income and preservation of capital.
RATE OF RETURN: The yield obtainable on a security based on its purchase price or its
current market price.
REPURCHASE AGREEMENT (RP OR REPO): A holder of securities sells these securities
to an investor with an agreement to repurchase them at 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 position.
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.
SUPRANATIONALS: Unsecured, unsubordinated obligations issued or unconditionally
guaranteed by the International Bank for Reconstruction and Development, International Finance
Corporation, or Inter-American Development Bank, which are permitted by Government Code
53601, Section Q.
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STUDENT LOAN ASSOCIATION NOTES (SLMA or SALLIE MAE): A U.S. Corporation
and instrumentality of the U.S. Government. Through its borrowings, funds are targeted for
loans to students in higher education institutions. SLMA securities are highly liquid and are
widely accepted.
SMALL BUSINESS ADMINISTRATION (SBA): The portion of these securities which are
guaranteed by the Federal government to provide financial assistance through direct loans and
loan guarantees to small businesses. Cash flows from these instruments may not be in equal
installments because of prepayments.
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".
TENNESSEE VALLEY AUTHORITIES (TVA): A U.S. Corporation created in the 1930s to
electrify the Tennessee Valley area; currently a major utility headquartered in Knoxville,
Tennessee. TVA securities are highly liquid and are widely accepted.
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
10 years.
TREASURY NOTES: Intermediate-term coupon bearing U.S. Treasury having initial
maturities of one year to ten 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 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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