Auction Rate Security - ARS

AAA

DEFINITION of 'Auction Rate Security - ARS'

A debt security that is sold through a dutch auction. The auction rate security (ARS) is sold at an interest rate that will clear the market at the lowest yield possible. This ensures that all bidders on an ARS receive the same yield on the debt issue.

The interest rate is reset periodically.

INVESTOPEDIA EXPLAINS 'Auction Rate Security - ARS'

In essence, an auction rate security is a long-term debt issue, but it acts as if it were a shorter term issue. This is because interest rates are reset approximately every month, depending on whether the issue is tax exempt, and the interest is paid either shortly after the auction yield is settled or every quarter or half year.

RELATED TERMS
  1. Yield

    The income return on an investment. This refers to the interest ...
  2. Auction Market

    A market in which buyers enter competitive bids and sellers enter ...
  3. Debt Security

    Any debt instrument that can be bought or sold between two parties ...
  4. Dutch Auction

    1. A public offering auction structure in which the price of ...
  5. Auction Rate

    The interest rate that will be paid on a specific security as ...
  6. Treasury Direct

    The online market where investors can purchase federal government ...
Related Articles
  1. The Impact Of An Inverted Yield Curve
    Bonds & Fixed Income

    The Impact Of An Inverted Yield Curve

  2. Auction Rate Securities: Bidding On ...
    Bonds & Fixed Income

    Auction Rate Securities: Bidding On ...

  3. What does it mean when my broker says ...
    Investing

    What does it mean when my broker says ...

  4. Advanced Bond Concepts
    Bonds & Fixed Income

    Advanced Bond Concepts

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center