Glossary of Terms
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A B C D E F G H I J K L M N
O P Q R S T U V W X Y Z #
- Accrued Interest
- The interest due on a bond or other fixed-income security that is
paid by a borrower to a lender for the use of funds.
- Accumulation Plan
- An arrangement in which an investor may make regular purchases of
investment company shares in large or small amounts. Automatic reinvestment of dividends
and distributions is usually provided.
- Accumulation Unit
- The basic valuation unit of the deferred variable annuity. Such
units are valued daily to reflect investment performance and the prorated daily deduction
for expenses, including management fee.
- Acquisition
- The act of one corporation acquiring control of another corporation.
In "unfriendly" take-over attempts, the potential buying company may offer a
price well above current market values, new securities and other inducements to
stock-holders. The management of the subject company may ask for a better price or try to
join up with a third company.
- Affiliated Company
- A company in which there is any direct or indirect ownership of 5
percent or more of the outstanding voting securities.
- Alpha
- A mathematical measure of price volatility that attempts to isolate
price movements of a stock from those of the market. When a stock is said to have a high
alpha, it is expected to perform well regardless of what happens to the market as a whole.
- Alternative Minimum Tax
- Federal tax aimed at ensuring that wealthy individuals, trusts,
estates, and corporations pay at least some income tax.
- American Depository Receipt (ADR)
- A certificate traded on U.S. stock exchanges or over the counter,
representing ownership of a specific number of shares of a foreign stock. ADRs trade in
U.S. dollars and settle just like other U.S. securities.
- American Stock Exchange (AMEX)
- An auction market where all buyers and sellers meet in free and open
competition of a centralized marketplace.
- Annual Exclusion
- Tax rule that allows a taxpayer to exclude certain kinds of income
from taxation.
- Annuitant
- The person on whose life annuity payments are based.
- Annuity
- A series of regular payments that provide an income for a specified
period of time (a number of years or for life). Annuities are generally issued by
insurance companies.
- Appreciation
- An increase of the value of an asset.
- Arbitrage
- A technique employed to profit from buying or selling the same
security in different market places, thus making money from the disparity in market
prices.
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- Asked Price
- Also referred to as the offering price or quote. The lowest price at
which a stock is offered for sale in the public market.
- Asset
- An economic resource that is owned or controlled by an entity. Some
examples include cash and real estate.
- Asset Allocation
- The act of investing in a combination of various types of
investments in order to diversify and reduce the risk for optimal return.
- Asset Coverage, Over-All
- The ratio of total assets to the sum of all prior obligations,
including the liquidation value of the specific issue under consideration.
- Asset Value, Per Common Share
- A company’s net resources at market value (after the deduction
of all liabilities, preferred stocks’ liquidation value and accrued dividends),
divided by the number of common shares outstanding.
- Asset Value, Per Preferred Share
- A company’s net resources at market value (after the deduction
of all liabilities, preferred stocks’ liquidation value and accrued dividends),
divided by the number of preferred shares outstanding.
- At-The-Market
- When a security is sold or purchased "at-the-market," the
broker will execute your trade at the next available price.
- Automatic Reinvestment
- The program of purchasing additional shares using cash distributions
and capital gain distributions at no or a reduced cost, thus allowing the shareholder to
accumulate capital over time using dollar cost averaging. Automatic reinvestment is
available for mutual funds and some individual securities.
- Average Annual Compound Return
- The simple rate of return, including reinvestment of distributions,
averaged over a specified period of time.
- Averages
- Various ways of measuring the trend of securities prices, including
the most popular Dow Jones Industrial Average of 30 stocks listed on the New York Stock
Exchange. The average is computed by totaling the prices of the 30 stocks and then
dividing by a divisor that is intended to compensate for past stock splits and stock
dividends. As a result, point changes in the average have only a vague relationship to
dollar price changes in stocks which are included in the average.
- Averaging
- Also known as dollar cost averaging. A system of buying securities
at regular intervals with a fixed dollar amount at the dollar’s worth rather than by
the number of shares. In the long run, more shares end up being purchased when prices are
low rather than high.
- Back-End Load
- A fee charged to investors who sell or withdraw their mutual fund
shares before owning them for a specified time.
- Balance Sheet
- A financial statement that shows the assets, liabilities, and owners' equity of an entity
at a particular date.
- Balanced Fund
- An investment company that holds bonds and/or preferred stocks in varying ratios to its
holding of common stocks, in order to maintain greater stability of capital and income.
- Balanced Investments
- The buying of an investment in order to obtain the highest return consistent with a
low-risk strategy.
- Bank Rate
- The minimum rate at which short term advances are made by the treasury to chartered banks
and other deposit taking institutions. Also known as the discount rate.
- Basis Point
- One one-hundredth of one percent. The smallest unit of measure used in quoting yields.
Often called a 'beep,' it is used to describe the differences in bond yields.
- Bear Market
- A term used to suggest that securities are likely to decline.
- Bearer Bonds
- Also called a coupon bond. A bond that is not registered in anyone’s name. A bearer
bond is payable to the person who holds it. Bearer bonds are no longer being issued.
- Beneficiary
- A person who is designated in a will, life insurance policy, letter of credit, annuity or
trust, to receive an inheritance.
- Bequest
- The giving of assets, such as stocks, bonds, mutual funds, real estate, and personal
property, to beneficiaries through the provisions of a will.
- Best Bid
- Highest price at which a security is offered for purchase.
- Beta
- Measures the volatility of a stock or mutual fund to the market as a whole. When a stock
or fund is said to have a beta higher than 1, it is expected to move up or down more than
the market. When beta is below 1, the stock or fund is expected to move less than the
market.
- Bid
- Also referred to as the asked price, a quotation or quote. The price at which a buyer is
willing to purchase a security.
- Bill
- A statement of money owed.
- Blue Chip
- A company known nationally for the quality and wide acceptance of its products or
services, and for its ability to make money and pay dividends.
- Blue-Sky Laws
- A name given to laws enacted by various states to protect the public against securities
fraud.
- Bond
- A contract between a borrower and a lender in which the borrower promises to pay, at
maturity, the face value plus a specified amount of interest for the period of time that
the bond is outstanding. Also called a "debt security," bonds are usually issued
by government agencies, municipalities, and corporations.
- Book Value
- The net-asset value of a company as determined by subtracting its liabilities from its
assets.
- Book Value Per Share
- A measure of a company’s net worth calculated by dividing the book value by the
number of shares of common stock.
- Bowie Bonds
- Name given to bonds floated against future music royalties on songs recorded by
"glitter rocker" David Bowie.
- Broker-Dealer
- A firm or individual who acts as a principal and an agent. A broker acts on behalf of the
client in searching for the best deal in the marketplace. A dealer acts on behalf of
itself in buying, selling, and maintaining inventories of securities.
- Brokered CD
- A large-denomination certificate of deposit bought by a brokerage from a bank. The
brokerage slices up the certificate into smaller pieces and then sells the pieces to its
customers.
- Bull Market
- A term to describe a rising stock market.
- Buy-and-Hold
- A strategy in which the stock portion of your portfolio is fully invested in the stock
market at all times.
- Call Feature
- States the conditions under which an issuer may retire a bond prior to maturity.
- Call Option
- The right to purchase shares at a predetermined price within a limited period of time.
- Callable Bond
- A bond that may be redeemed by the issuer prior to maturity.
- Capital Gain
- An increase in the value of a capital asset, calculated by the difference in price at
which an investment was purchased and the price at which it was sold.
- Capital Growth
- The amount that a security’s market value increases over the original purchase price,
or the amount that a mutual fund increases as reflected in the net asset value of the
shares.
- Capital Loss
- A decrease in the value of a capital asset, calculated by the difference in price at which
an investment was purchased and the price at which it was sold.
- Cash Equivalents
- Short-term, highly liquid investments.
- Cash Flow Per Share
- A measure of a firm’s financial strength. Earnings after taxes plus depreciation, on
a per share basis.
- Certificate of Deposit (CD)
- A money market instrument issued by banks, in which principal and interest are paid at
maturity.
- Chapter 7
- A form of bankruptcy in which an entity is in a state of insolvency and must liquidate
assets.
- Chapter 11
- A form of bankruptcy in which a court approved reorganization of outstanding debt takes
place while the business continues to operate.
- Charitable Remainder Trust
- Irrevocable trust in which one or more individuals are paid income until the
grantor’s death, at which time the balance becomes tax free and is passed on to a
designated charity.
- Charting
- Another name for technical analysis.
- Churning
- Excessive trading in an investor's account, usually to benefit the broker in the form of
commissions. Churning is illegal.
- Class of Shares
- Shares of varying rights or powers that are issued by the same company (ex. Class A, Class
B).
- Closed-End Investment Company
- A pooled investment fund that issues a set number of shares for purchase. Once these
initial shares have been sold, no additional shares are issued. Also known as a closed-end
fund.
- Collaterized Mortgage Obligations (CMOs)
- Mortgage-backed bonds that separate mortgage pools into different maturity classes.
- Commercial Paper
- Short term debt obligations (IOUs) issued by corporations and bought by money market funds
in large quantities. Maturities range from several days to 9 months.
- Commission
- A broker’s fee for buying or selling securities.
- Commodity
- An article of commerce or a product that can be used for commerce (ex. metals, financial
instruments, agricultural products).
- Common Stock
- A share of ownership in a corporation.
- Compounding
- The ability of an asset to generate interest that is then added to previous principal plus
interest.
- Conservator
- A court-appointed individual who manages the property of a person lacking the capacity to
manage his own property.
- Consumer Price Index (CPI)
- Used to measure inflation, the CPI monitors the price of a basket of goods to establish
the general direction of prices in an economy.
- Convertible Bond
- A bond that is exchangeable, usually for a predetermined number of common stock shares in
the same company.
- Corporate Bond
- A bond issued by a private corporation.
- Correction
- A sudden temporary decline in stock or bond prices following a period of market strength;
a 10% reduction in the market from the previous value.
- Coupon
- A detachable piece of paper that the owner of a security clips from the security and sends
to the issuer for payment of periodic interest.
- Current Income
- Dividends, interest, rent, and other income sources being received on an ongoing basis
from investments.
- Current Ratio
- A measure of the liquidity of a business. Current assets divided by current liabilities.
- Current Yield
- Annual dividend or interest rate divided by the current price of the security.
- Custodian
- A bank or financial institution that holds securities and assets for a client or fund.
- Cyclical Companies
- A name given to companies that tend to follow overall economic cycles. When the overall
economy is strong, cyclical companies report strong earnings and vice versa.
- Cyclical Industry
- An industry whose performance is closely tied to the condition of the general economy.
Steel, cement, machine tools and automobile industries are examples cyclical industries.
- Cyclical Stocks
- Stocks of companies whose earnings are tied to the business cycle. When business
conditions are good the company is profitable and the price of common stock increases, and
vice versa.
- Day Order
- An order to buy or sell which expires at the end of the trading day on which it was
entered if it is not executed.
- Debenture
- A corporate IOU that is not backed by the company’s assets and is therefore somewhat
riskier than a bond.
- Debt-Equity Ratio
- Total liabilities divided by total shareholder equity. The higher the ratio, the higher
the debt level.
- Deep Discount Bond
- A bond selling at a discount of more than about 20 percent from its par value.
- Default Risk
- The risk that a company will be unable to pay the principal or contractual interest on its
debt obligations.
- Deflationary
- A term used to describe a situation in which the general price level of goods and services
is declining.
- Depreciation
- Cost allocation that assigns the original cost of plant and equipment to the period over
which it was held.
- Derivative
- Financial instruments whose value is based on the market value of an underlying asset such
as stocks, bonds or a commodity.
- Discount
- The amount charged by a financial institution when a note receivable is discounted. The
discount is equal to maturity value times discount rate times discount period.
- Discount Bond
- A bond that is valued at less than its face value.
- Discount Broker
- A brokerage house that executes orders at a cut-rate, but provides little or no research
or investment aids.
- Discount Rate
- The interest rate charged by the Federal Reserve for loans to member banks.
- Diversification
- The process of accumulating securities in different types of investments, industries, risk
categories, and companies in an effort to reduce the potential risk of loss from any one
investment.
- Dividend
- A cash payment distributed to shareholders. Dividends are financed by profits, and are
announced before they are paid.
- Dividend Payout Ratio
- The percentage of earnings paid to shareholders.
- Dividend Yield
- Annual dividends per share divided by price per share. The dividend yield is the
percentage of return earned by an investor on common or preferred stock.
- Dollar Cost Averaging
- A system of buying securities at regular intervals with a fixed dollar amount at the
dollar’s worth rather than by the number of shares. In the long run, more shares end
up being purchased when prices are low rather than high.
- Donor
- Individual who donates property to another through a trust. Also called a grantor.
- Dow Jones Industrial Average (DJIA)
- Price-weighted average of 30 actively traded blue-chip stocks traded on the New York Stock
Exchange.
- Earnings Per Share (EPS)
- A company’s profits after taxes, bond interest and preferred stock payments, divided
by the number of common stock outstanding.
- Earnings Yield
- Earnings per share for the most recent 12 months divided by the market price per share.
- Economic Growth
- The increase in value of the economy's production of goods and services. Economic growth
is expressed as Gross National Product (GNP) or Gross Domestic Product (GDP).
- Employee Retirement Income Security Act (ERISA)
- The 1974 law that created the Pension Benefit Guaranty Corporation and established
guidelines for managing pension funds and eased eligibility regulations.
- Employee Stock Ownership Plan (ESOP)
- A program in which employees have the opportunity to buy stock in their own company,
thereby giving the employees a voice in the firm's management.
- Equity
- Another word for stock or similar securities in which there is ownership interest.
- Equivalent Taxable Yield
- A comparison of the tax free yield on a municipal bond to that of a corporate bond.
- Estate
- All the assets a person possesses at the time of death, including securities, real estate,
interest in business, physical possessions, and cash.
- Estate Tax
- A tax imposed by a state or the federal government on assets left to heirs in a will.
- Eurodollar
- U.S. dollars deposited in foreign banks or foreign branches of U.S. banks.
- Ex-Dividend
- The date when the right of dividend no longer exists with the new buyer of the security.
The ex-dividend date is four business days prior to holder-of-record date.
- Exchange Privilege
- The right of a shareholder to switch from one mutual fund to another in the same family of
funds, usually at no additional charge.
- Expected Rate of Return
- The average possible return.
- Expense Ratio
- An amount (expressed as a percentage of total investment) that shareholders pay annually
for mutual fund operating expenses and management fees.
- Face Value
- The value principal amount as stated on the bond certificate.
- Federal Funds Rate
- The interest rate charged by banks who lend their excess reserves to other banks who need
overnight loans.
- Federal Home Loan Mortgage Corporation (FHLMC)
- A publicly chartered agency that buys qualifying residential mortgages from lenders,
packages them, provides guarantees, and then resells the securities on the open market.
- Federal National Mortgage Association (FNMA)
- Chartered in 1938, the FNMA is a publicly owned, government-sponsored corporation that
purchases mortgages from lenders and resells them to investors.
- Fiduciary
- A person, company or association who is responsible for investing the assets of the
beneficiary in a prudent manner (ex. a trustee).
- Financial Planner
- A professional who helps individuals delineate financial plans with specific objectives
and prepares a program to meet the needs and objectives.
- Fixed Income Investment
- A description for investments in bonds, certificates of deposit and other debt-based
instruments that pay a fixed amount of interest.
- Floater
- A debt security with a variable interest rate tied to another interest rate.
- Free Cash Flow Per Share
- Net income plus all non-cash expenses, less dividends and capital expenditures, on a per
share basis. A measure of a firm’s financial flexibility.
- Front-End Load
- The sales commission applied to an investment at the time of initial purchase.
- Full-Service Broker
- A brokerage firm with a research department and other services designed to supply its
clients with investment advice.
- Fundamental Analysis
- The valuation of stocks based on the balance sheet and income statements of companies, in
order to determine a company’s worth and potential for growth.
- Futures Contract
- An agreement to buy or sell a certain amount of a commodity or a financial instrument at a
stipulated price, at a future date.
- General Obligation Bond (GO)
- A municipal bond backed by the full faith, credit, and taxing power of the issuing unit
rather than the revenue from a given project.
- Ginnie Mae Pass-Through Certificate
- Fixed-income securities that represent an undivided interest in a pool of federally
insured mortgages put together and guaranteed by the Government National Mortgage
Association (a.k.a. Ginnie Mae).
- Going Public
- Selling privately held shares to new investors on the over-the-counter market for the
first time.
- Grantor
- An options trader who sells a call option or a put option and collects a premium for doing
so.
- Gross Domestic Product (GDP)
- The total value of goods and services produced in the national economy in a given year.
The GDP does not include products made by U.S. companies in foreign markets, but does
include products made in the U.S. by foreign companies. It is the primary indicator of
economic growth in the U.S.
- Growth Stocks
- Stocks that are expected to experience substantial growth in earnings per share and price
while retaining a high proportion of earnings.
- Guaranteed Investment Contract (GIC)
- A debt instrument sold in large denominations for retirement plans.
- Guardian
- An individual who has the legal right to care for another person as a parent or to act as
an administrator of the assets of a person declared incompetent for mental or physical
reasons.
- Hedge
- A term to describe protective maneuvering by an investment manager to reduce the risk of a
loss from a specified event.
- Heir
- A person who inherits some or all of the estate of a deceased person by virtue of being in
the direct line, or being designated in a will or by a legal authority.
- Holding Period
- The length of time an asset is held by its owner.
- Income Statement
- Also referred to as a profit and loss statement (P&L). The financial statement that
summarizes the revenues and expenses of a company over a specified period of time.
- Income Stock
- A stock that pays high and regular dividends to shareholders.
- Index
- A statistical measure of the changes in a particular market by monitoring a certain group
of securities over time.
- Individual Retirement Account
- A tax-sheltered account ideal for retirement savings because it permits investment
earnings to accumulate untaxed until they are withdrawn. The yearly contribution limit is
$2,000, and penalties usually apply for withdrawals before age 59 �. In the event that a
taxpayer’s yearly income is below a certain amount, all or part of their IRA
contributions can be deducted, making the contributions a double tax shelter.
- Inflation
- Increases in the general price level of goods and services. Inflation is commonly reported
using the Consumer Price Index (CPI) as a measure, and is one of the major risks to
investors over the long term.
- Inflation Risk
- Uncertainty over the future value of your investment (after inflation).
- Initial Public Offering
- A corporation’s first public offering of an issue of stock.
- Insider
- Directors, officers, and others in a corporation who know of or have access to
confidential information which has not been released to the general public. Under the SEC
rules, an insider is not permitted to trade the stock on the basis of such information.
- Institutional Investors
- Mutual funds, banks, insurance companies, pension plans and others that buy and sell
stocks and bonds in large volumes.
- Insured Municipal Bonds
- Bonds that are insured against default by a municipal bond insurance company.
- Inter Vivos Trust
- Also referred to as a Living Trust. A trust established between living persons (ex.
between a father and child).
- Inverted Yield Curve
- A situation where short term interest rates are higher than long term rates. An inverted
yield curve is usually a sign of increased inflation accompanied by low levels of
confidence in the economy.
- Investment Adviser
- A person who manages another person’s assets for a fee, usually a percentage of the
assets invested.
- Investment Adviser Act
- Legislation passed by Congress in 1940 to protect the public against misrepresentation and
fraud. The Investment Adviser Act requires all investment advisers to register with the
SEC.
- Investment Company
- A trust or corporation whose assets are held for investment and are readily marketable.
The two most common types are open-end mutual funds and closed-end management companies.
- Irrevocable Trust
- A trust that cannot be changed or terminated by the person who created it without the
agreement of the beneficiary.
- Junk Bonds
- A high-risk, high-yield bond with a credit rating of BB or lower according to Standard
& Poor's or Moody's rating systems. Junk bonds are issued by relatively unknown or
financially weak companies, or they have limited backing from reasonably solvent
companies.
- (empty)
- Lagging Indicator
- Economic indicator that changes directions after business conditions have turned around.
- Leading Indicator
- Economic indicator that changes directions in advance of general business conditions.
- Leveraging
- Investing with borrowed money in the hope of multiplying gains. The disadvantage of
leveraging is that it also multiplies losses.
- Leveraged Buyout (LBO)
- The use of borrowed money to finance the purchase of a firm. An LBO is often financed by
raising money through the issuance and sale of junk bonds.
- Limit Order
- An order to buy or sell a security if it reaches a specified price.
- Liquidity
- The ability to quickly convert an investment portfolio to cash without suffering a
noticeable loss in value.
- Load
- A term used in the mutual fund industry to identify the sales charge or commission on a
particular fund. Common types of loads are front-end loads and back-end loads (deferred
sales charges).
- Long Term Bond
- A bond maturing in ten or more years.
- Margin
- The difference between the current market value of the collateral and the amount of the
loan.
- Market Capitalization
- The number of common stock shares outstanding times share price.
- Market Order
- An order placed with a broker to buy or sell a security at whatever the price may be when
an order is executed.
- Market Risk
- The volatility of a stock price relative to the overall market as indicated by beta.
- Market Timing
- A term to describe a decision to leave the market entirely during downturns and reinvest
when it heads back up.
- Maturity
- The date at which a debt instrument is due and payable.
- Maturity Date
- Date on which the principal amount of a note, draft, acceptance bond, or other debt
instrument becomes due and payable.
- Monetary Policy
- A federal government policy pursued by the Federal Reserve to control interest rates and
the money supply.
- Money Market Fund
- A mutual fund that invests in short-term corporate and government debt. Interest payments
are passed on to shareholders.
- Money Market Instruments
- Debt instruments such as treasury bills or corporate paper with a maturity of less than
one year and are easily converted to cash.
- Municipal Bond
- A debt instrument issued by a state or local government in which the interest is exempt
from federal income taxation, and also exempt from federal and local tax in the issuing
state.
- Mutual Fund
- A professionally managed portfolio of stocks, bonds, and other investments that are
divided up into shares. The market price of the fund’s shares fluctuates daily with
the market price of the securities in its portfolio.
- National Association of Securities Dealers Automated Quotations
System (Nasdaq)
- A computerized system that provides brokers and dealers with price quotations for about
5,000 of the more actively traded over-the-counter stocks.
- National Association of Securities Dealers, Inc. (NASD)
- A self regulatory organization (SRO) operating under the supervision of the SEC. Its
purpose is to standardize practices, establish high ethical standards, and enforce fair
and equitable rules.
- Net Asset Value (NAV)
- In mutual funds, the NAV is the per share market value of a mutual fund. Also known as the
bid price.
- Net Asset Value Per Share (NAVPS)
- Total assets less intangible assets and all liabilities, divided by the number of shares
outstanding.
- Net Change
- The difference between the last trading price on a stock, bond, commodity, or mutual fund
from one day to the next.
- New York Stock Exchange (NYSE)
- An auction market, where stocks are bought and sold at prices determined by bids and
offers of investors. Investors are represented on the trading floor by floor
professionals, who use their experience, skill and judgment to obtain the best possible
prices for customers.
- New York Stock Exchange Index
- A market-weighted measure of stock market changes for all stocks listed on the NYSE.
- No Load Fund
- A mutual fund operated by an open-end investment company that does not assess a sales
charge.
- Note
- A written promise to pay a specified amount to a certain entity on demand or on a specific
date.
- Open Order
- Buy or sell order for securities that has not yet been executed or canceled.
- Operating Expense
- The amount paid for asset maintenance or the cost of doing business.
- Option
- The right to buy or sell a security at a stated price within a given time
- Over-The-Counter (OTC)
- A computerized network (Nasdaq) through which trades of bonds, non-listed stocks, and
other securities take place.
- Par Value
- The face value of a security.
- Payout Ratio
- Percentage of a firm's profits that is paid out to shareholders in the form of dividends.
Dividends per share divided by earnings per share.
- Penny Stock
- A recently issued stock selling for less than $5 per share and traded in the
over-the-counter market. Penny stocks are usually issued by small, relatively unknown
companies and are lightly traded.
- Pooling
- Combining resources for a common purpose.
- Portfolio
- A collection of investments owned by an investor, an institution or a mutual fund.
- Preferred Stock
- A class of stock that pays a fixed dividend rate in which the company is obliged to pay
before it distributes dividends to common shareholders.
- Premium Bond
- A bond with the selling price above face or redemption value.
- Present Value
- The value today of a future payment, or stream of payments, discounted at some appropriate
interest rate.
- Price-Earnings Current (P/E Current)
- The current price of a security divided by earnings per share.
- Price-Earnings Projected (P/E Projected)
- The projected price of a security divided by projected earnings per share.
- Price-Earnings Ratio (P/E)
- Market price per share divided by a firm’s earnings per share. The price-earnings
ratio is a measure of how the market currently values the firm’s earnings growth and
risk prospects.
- Primary Market
- The market in which new issues (IPOs) are sold. A market is primary if the proceeds of the
sale go to the issuer.
- Prime Rate
- The interest rate charged by a chartered bank to its most credit worthy borrowers.
- Principal
- The initial investment or the face amount of a bond.
- Profit Sharing Plans
- Agreement between a corporation and its employees that allows the employees to share in
company profits.
- Program Trading
- Computer driven buying or selling of baskets of fifteen or more stocks by index arbitrage
specialists or institutional traders.
- Prospectus
- A written statement disclosing the terms of a securities offering or mutual fund.
- Proxy
- The formal authorization by a stockholder that permits someone else to vote in his or her
place at shareholder meetings.
- Put Bonds
- A bond that allows its holder to redeem the issue at specified intervals before maturity
and receive full face value.
- Put Option
- An investment product that gives you the right to sell shares at a predetermined price for
a limited period of time.
- (empty)
- Real Rate of Return
- Return on an investment adjusted for inflation.
- Real Yield
- The nominal yield received minus the percentage change in the Consumer Price Index (i.e.,
the rate of inflation).
- Recession
- Two consecutive quarters with a decrease in economic output.
- Registered Bond
- A bond that is recorded in the name of the holder on the books of the issuer or the
issuer's registrar, and can be transferred to another owner only when endorsed by the
registered owner.
- Reinvestment Privilege
- The option to have all dividends and capital gains automatically reinvested to purchase
more shares.
- Relative Strength
- Price performance of a stock divided by the price performance of an appropriate index over
the same time period. The relative strength is a measure of price trend that indicates how
a stock is performing relative to other stocks.
- Required Rate of Return
- The rate of return demanded to induce investors to invest in a security.
- Retained Earnings
- The net profits reinvested in the business after dividends are paid.
- Return
- Profit on a securities or capital investment, usually expressed as an annual percentage
rate.
- Return on Equity (ROE)
- The ratio of net income to equity.
- Revocable Trust
- An agreement whereby income-producing property is deeded to heirs.
- Risk
- The possibility that an investment will not perform as anticipated.
- Risk/Return Trade-Off
- A concept that risk equals return; in other words, the higher the return the greater the
risk and vice versa.
- Round Lot
- The basic trading block for stocks – usually 100 shares.
- Sales Charge
- Also known as sales load. It is the fee charged on an investment. The sales charge is
added to the net asset value when determining the offering price of mutual fund shares.
- SEC Filing Terms
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- Secondary Market
- The exchange or over-the-counter market where shares are traded after the initial
offering.
- Secondary Offering
- The redistribution of a block of stock sometime after it has been sold by the issuing
company.
- Securities
- A term used to describe a broad range of investment instruments, including stocks and
bonds, mutual funds, options, and municipal bonds.
- Securities Investor Protection Corporation (SIPC)
- A nonprofit corporation, established by Congress under the Securities Investor Protection
Act of 1970. The SIPC insures securities and cash in customer accounts of member brokerage
firms against the failure of those firms.
- Securities and Exchange Commission (SEC)
- A federal agency created by the Securities Exchange Act of 1934 to administer that act and
the Securities Act of 1933.
- Selling Short
- A technique used to take advantage of an anticipated decline in the price of stock or
other security by reversing the usual order of buying and selling. An investor who borrows
stock from a broker and immediately sells it is selling short. The investor profits by
buying back the stock at the lower price.
- Shareholders' Equity
- Total assets less total liabilities. Also called net worth.
- Short Term Investment Horizon
- An investment period of one year or less.
- Simple Rates of Return
- The percentage change in the net asset value of a fund over a certain period of time,
usually in terms of one month to one year periods.
- Simplified Employee Pension Plan (SEP)
- A pension plan in which both the employee and the employer contribute to an individual
retirement account.
- Sinking Fund
- Money accumulated on a regular basis in a separate custodial account that is used to
redeem debt securities or preferred stock issues.
- Soft Dollar
- Refers to paying a higher commission than could be negotiated for additional services such
as research and technology.
- Spread
- The difference between the bid and offer prices.
- Standard & Poor's 500 (S&P 500)
- A benchmark of U.S. common stock performance. The S&P 500 includes 500 of the largest
stocks (by market value) listed in the U.S.
- Standard & Poor's Corporation
- One of the two foremost financial rating agencies. Standard & Poor’s rates most
of the publicly held corporate and municipal bonds and many of the government issues.
- Standard Deviation
- A statistical measure of a probability distribution measuring the degree to which a
specific value in a probability distribution varies from the expected return or value.
- Stock
- Ownership of a corporation represented by shares that are a claim on the corporation's
earnings and assets.
- Stock Dividend
- A dividend paid in additional shares of stock rather than cash.
- Stock Symbol
- Also referred to as a ticker symbol. The letters used to identify listed companies on the
securities exchanges on which they trade.
- Stop Order
- An order to buy or sell at the market price once the security has traded at a specified
price.
- Stop-Limit Order
- Order to a securities broker with instructions to buy or sell at a specified price or
better after a given stop price has been reached or passed.
- Stop-Loss Order
- A customer order to a broker that sets the sell price of a stock below the current market
price.
- Strategic Planning
- Planning which focuses on long range objectives and goals.
- Supply
- The amount on hand, or available for use.
- Tax Deferred
- A term describing an investment whose accumulated earnings are free from taxation until
the investor takes possession.
- Technical Analysis
- Research into the demand and supply for securities, options, mutual funds, and commodities
based on trading volume and price trend studies.
- Tender Offer
- Public offering by a corporation to purchase shares from the investors at a specified
price.
- Time Value of Money
- The concept that money available today is worth more than that same amount in the future.
- Total Market Value
- The price of common stock times the total shares outstanding.
- Total Return
- A measure of investment performance that starts with price changes, then adds in the
results of reinvesting all earnings, such as interest or dividends, generated by the
investment during the period being measured.
- Treasury Bill
- Short term government debt, issued in large denominations ($10,000) by the Federal Reserve
usually to institutional investors.
- Treasury Bonds
- Long term debt issued by the U.S. government with maturity of over ten years. Treasury
bonds usually pay interest semi-annually and may be callable in later years.
- Treasury Notes
- Intermediate term interest bearing debt issued by the U.S. government with maturity of one
to ten years. Notes do pay interest and are not callable.
- Turnover
- The number of times that assets, such as inventory or accounts receivable, are replaced on
average during the period.
- Two-Sided Market
- A market in which the bid and ask sides are firm.
- Unit Investment Trust
- A registered investment company that purchases a fixed portfolio of income producing
securities, such as corporate, municipal, or government bonds.
- Valuation
- Process of determining the current worth of an asset.
- Volatility
- Characteristic of a security, commodity, or market to rise or fall sharply in price within
a short term period.
- Volume
- The total number of stock shares, bonds, or commodities futures contracts traded in a
particular period.
- Withdrawal Plan
- A program in which shareholders may receive periodic payments from an investment.
- (empty)
- Yield
- The return on an investor's capital investment.
- Yield Curve
- A curve on a graph that plots the interest rate (yield) of a bond on the vertical axis and
the length of time until maturity on the horizontal axis.
- Yield to Maturity
- The rate of return anticipated on a bond if it is held to maturity.
- Zero Coupon Bond
- A bond that pays all of its interest at maturity but none prior to maturity.
- 401(k) Plan
- A plan in which employees may elect, as an alternative to receiving taxable cash in the
form of compensation or a bonus, to contribute pretax dollars to a qualified tax-deferred
retirement plan. Elective deferrals are limited to about $9,000 a year, and withdrawals
prior to age 59 � are subject to a 10 percent penalty tax except for death, disability,
termination of employment, or qualifying hardship.
- 403(b) Plan
- A type of Individual Retirement Account (IRA) covered in Section 403 (b) of the Internal
Revenue Code, permitting employees of qualifying nonprofit organizations to set aside
tax-deferred funds.
- A type of Individual Retirement Account (IRA) covered in Section 403 (b)
of the Internal Revenue Code, permitting employees of qualifying nonprofit organizations
to set aside tax-deferred funds.
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