M&K Financial Services
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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 ½ 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.
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.
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.
An economic resource that
is owned or controlled by an entity. Some
examples include cash and real estate.
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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.
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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.
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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.
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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.
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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.
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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).
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.
All the assets a person
possesses at the time of death, including securities, real estate, interest
in business, physical possessions, and cash.
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.
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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.
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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.
A person, company or association
who is responsible for investing the assets of the beneficiary in a prudent
manner (ex. a trustee).
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.
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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.
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Hedge
A term to describe protective
maneuvering by an investment manager to reduce
the risk of a loss from a specified
event.
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.
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 ½. 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.
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.
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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.
Legacy Planning
Legacy Planning is seeks to ensure that a business' assets are protected from taxation when ownership is transferred. By planning the business succession early, one can maximize the possibility for continued growth and retirement security.
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.
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.
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.
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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 YorkStock
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 YorkStock 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.
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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.
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.
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.
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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.
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.
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.
Planning which focuses
on long range objectives and goals.
Supply
The amount on hand, or
available for use.
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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.
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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.
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