A
Accountant’s opinion: Signed statement of opinion from an accounting firm on a corporations financial statements. The auditor must follow generally accepted accounting principles. The opinion can be unqualified or qualified. A qualified opinion calls attention to limitations of the audit or unusual items in the statement.
Accounts Payable: Money a company owes for merchandise or services bought on credit
Accounts Receivable: Money owed to a company for merchandise or services bought on credit.
Accrual basis: Accounting method in which income and expenses are accounted for as they are earned or incurred, although they may not have been received or paid yet.
Adjusted Gross Income (AGI): A measure used to calculate how much income is taxable by the government. AGI is calculated with gross income from taxable sources minus certain items, such as payments to a Keogh plan or a deductible Individual Retirement Account (IRA). AGI minus deductions and personal exemptions is taxable income.
Affiliate: An association between two companies when one owns less than a majority stake of the other, or when both are subsidiaries of a third company. Or, generally, any association between to companies that is short of a parent-subsidiary tie.
After-Hours Trading: Real time trading that takes place outside the normal exchange hours of 9:30 a.m. to 4 p.m. Eastern Standard Time. With after-hours systems, buyers and sellers may transact business before the markets open as well as after the markets have closed.
Aggregate: A total amount
Alternative minimum tax (AMT): Tax-law provision that ensures that individuals and companies pay some income tax, no matter how many deductions or credits they claim,. Under the AMT, money not usually considered taxable (such as income on tax-free bonds) and sums considered usually dedicative are treated as taxable.
American depository receipts (ADRs): Receipts held by an American bank that represent shares in a foreign company. Also called American depositary shares.
American-style Option: An option that may be exercised on or before the expiration date.
Amex Composite Index: Index that measures the aggregate value of all Amex-listed stocks.
Amortization: Accounting procedure that companies use to write off intangible rights or assets-such as goodwill, patents, or copyrights-over the period of their existence.
Annual effective yield: Measure of the actual annual return on an account after interest is compounded.
Annual percentage rate (APR): Interest rate that borrowers pay on a loan. Most of a loan’s up-front fees are factored into the APR.
Annual Report: Yearly report on a company’s financial state and organization that is prepared by management for shareholders.
Annuity: An investment contract whereby an individual makes an upfront payment now in return for a stream of monthly income in the future. It is offered by insurers, banks, brokerage firms and mutual fund companies and is commonly used to save on a tax-deferred basis for retirement.
Antitrust law: Any law that encourages competition by limiting unfair business practices and curbing monopolies’ power.
Appreciate: An increase in an asset’s value
Arbitrage: Buying and selling securities simultaneo9usly to take advantage of price differences. E.g., buying gold in London and selling it in New York; buying a basket of stocks that make up an index and selling the index itself.
Asked: Price being sought for a security by the seller. Also called the offer
Asset: Everything a company or individual owns or is owed.
Asset allocation: Investment technique of dividing investment money among a variety of instruments and markets.
Asset-backed securities: Securities backed by loans or accounts receivable. For example, an asset-backed bond is created when a securities firm bundles some type of debt, like car loans, and sells investors the right to receive the payments that consumers make on those loans.
Asset-management accounts: All in one accounts that allow customers of brokerage firms to buy and sell securities and store cash in one or more money marketing mutual funds. Asset-management accounts generally offer check writing privelages credit or debit cards, and automatic transfers from one account to another. They often come with an annual fee of up to $100.00.
At The Money: An option with a strike price equal to the current price of the instrument, such as a stock, upon which the option was granted.
Auction market: Trading securities on a stock exchange where buyers compete with other buyers or sellers compete with other sellers for the best stock price. Trading in individual stocks is managed and kept orderly by a specialist.
Auditor’s report: Independent accounting firm’s opinion on whether the company financial statements conform to generally accepted accounting principles.
Average annual yield: Measure of the return on investments of more than one year. It is calculated by adding each year’s return on investment and dividing that number by the number of years invested.
Averages: In the stock market, averages are indicators that measure price changes in representative stock prices. The most popular indicator is the Dow Jones Industrial Average, which measures the performance of 30 industrial stocks.
B
Balance Sheet: Financial statement that lists a company’s assets and liabilities as of a specified date.
Balanced Fund: Mutual fund that has three investment objectives: conserve the investors’ principal, pay steady income and promote long-term growth of both principal and income
Bankruptcy: Legal process governed by the U.S. bankruptcy code for people or companies unable to meet financial obligations. The bankruptcy code is divided into chapters that provide different types of relief. Chapter 7 governs liquidation rather than reorganization. Chapter 11 provides for reorganization and repayment for individuals, partnerships, and corporations that are domiciled in the U.S. Chapter 13 provides for individual debt adjustments and is an alternative to liquidation under Chapter 7.
Basis Point: Smallest measure used in quoting yields on bonds and notes. One basis point is 0.01 percent of yield. For example, a bond’s yield that changed from 12.72 percent to 12.52 percent has moved 20 basis points.
Bearer Stock: Stock certificates that aren’t registered in any name. They are negotiable without endorsement by any person.
Bear Market: When security prices decline 15 percent or more.
Beneficiary: A person named to receive a benefit in a will, life insurance policy, retirement plan, or other financial arrangement upon death.
Beta: An estimate of an investment’s volatility. The lower the beta, the less risky the investment.
Bid: The highest price that someone is willing to pay for a security or an asset.
Bill of exchange: Signed, written order by one business that instructs another business to pay a third business a specific amount. Also called a draft.
Block Trade: buying or selling 10,000 shares of stock or $200,000 or more worth of bonds.
Blue-chip stocks: Stocks of companies known for their long established record of earning profits and paying dividends.
Bond: Debt instrument that pays a set amount of interest on a regular basis. The issuer promises to repay the debt on time and in full. Bonds are bought and sold on the secondary market.
Bond Buyer Municipal Bond Index: An index based on 40 long-term municipal bonds that is often used to track the performance of the tax-free municipal bonds. The index is complied by The Bond Buyer, a trade publication.
Bond rating (debt rating): An assessment of the likelihood that investors will receive the promised interest and principal payments on time. Bond ratings are assigned by independent agencies, such as Moody’s Investors Service and Standard Poor’s.
Book to bill ratio: A measure of sales trends of a company or industry. A number above 1 indicates an expanding market, and a number below 1 is a contracting market. For example, a book-to-bill ratio of 1.03 means that for every 100 of products shipped, 103 in new orders was received.
Book Value: A company’s net worth (difference between a company’s net assets and its liabilities), usually expressed in per-share terms.
Bottom fishing: Buying stocks whose prices have bottomed out or fallen to low levels.
Brady bonds: securities issued by foreign governments as part of a debt-restricting program initiated by former U.S. Treasury Secretary Nicholas Brady.
Broker: A person who gives advice and handles orders to buy or sell stocks, bonds, commodities, and options.
Brokerage firm: Financial services firm that provides the service of buying and selling securities. Brokerage firms fall into two main camps, full-service brokers and discount brokers.
Bull market: A time period when securities prices increase.
C
Cafeteria Plan: Flexibile-benefit plan offered by many employers that give workers a certain number of credits and a menu of benefit options on which to spend them. The list may include medical coverage, life insurance, disability coverage, vacation days, and dental care. Employees who do not want a particular benefit can spend more on another, or receive the difference in cash.
Call: Issuer’s right to redeem a bond or preferred share before it matures.
Callable bond: A bond that can be redeemed by the issuer before it matures.
Call option: Agreement that gives an investor the right but not the obligation to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period.
Call risk: The risk that an issuer may redeem a security sooner than expected.
Capital Asset: an asset held for more than a year that isn’t bought or sold in the normal course of business, capital assets generally include fixed assets such as land, buildings, equipment, and furniture.
Capital Gain: Difference between the purchase price and the sale price of an asset when the asset was sold for more than it was bought.
Capital Loans: Difference between the purchase price and the sale price of an asset when the asset was sold for less than it was bought
Cash flow: Net income after depreciation and other non cash charges are included.
Cash market: The trading of securities according to their current-or spot-price. That is in contrast to trading in a security for future delivery.
Certificate of Deposit: A savings contract that pays a fixed interest rate for a specified time.
Certified Financial Planner (CFP): The best-known financial planning designation, given to qualifying planners by the CFP Board of Standards of Denver
Certified Public Accountant (CPA): An accountant who has passed an administered examination that focuses on accounting practices and taxes.
Charitable lead trust: A trust that pays a charity income from a donated asset for a set number of years, after which time the principal goes to the donor’s beneficiaries with reduced estate or gift taxes.
Charitable remainder trust: A trust that allows people to leave assets to a charity and receive a tax break but still retain income for life. This works best for people with a large appreciated asset, which, if sold, would generate large capital-gains taxes.
Chartered Financial Analyst (CFA): This qualification focuses on portfolio management and securities analysis. It also covers economics, financial accounting, securities analysis and standards of conduct.
Chartered Financial Consultant (ChFC): Financial planning designation given to qualifying planners by the American College of Bryn Mawr, Pennsylvania.
Chartered Life Underwriter (CLU): A professional designation given to qualifying life insurance agents by the American College of Bryn Mawr, Pennsylvania.
Chicago Board of Trade (CBOT): One of the oldest futures exchanges where agricultural and financial futures and options are traded.
Chicago Board Options Exchange (CBOE): An exchange set up by the Chicago Board of Trade to trades tock options. IT now has trading in a variety of options contracts including options on stock indices, interest rates and sector indices.
Churning: Excessive trading in a customer’s brokerage account, done to generate increased commission income. Churning is a securities law violation. In the stock market, it refers to a period of heavy trading activity but few sustained price trends and little overall movement in stock market indexes.
Circuit Breakers: Measures used by some major stock and commodities exchanges to restrict trading temporarily when markets rise or fall too far and/or to fast
Closed-end fund: Type of fund that issues a set number of shares and typically trades on a stock exchange.
Closely held: Companies in which stock and voting control are concentrated in the hands of a few investors, although the companies’ shares may be traded to a limited extent.
Closing price: The last traded price of a stock when the market closes.
Collaborative fund: Also known as collective intelligence funds. While these are managed by professionals, they choose the makeup of the portfolio based on recommendations from volunteer stock pickers.
Collateral: stock or other property that borrowers are obliged to turn over to lenders if they are unable to repay a loan.
Collateralized Mortgage Obligations (CMOs): Multi-class bond backed by a pool of mortgage pass-through securities or mortgage loans.
Commercial bank: A bank owned by shareholders that accepts eposits, makes commercial and industrial loans, and provides other banking services to the public. Also called a full-service bank.
Commerical paper: Unsecured short-term promissory notes used by companies to obtain cash. They are sold through dealers in the open market or directly to investors.
Commodities: Bulk goods such as grains, metals, livestock, oil, cotton, coffee, sugar, and cocoa. They can either be sold on the spot market for immediate delivery or on the commodities exchanges for later delivery. Trade on the exchanges is in the form of futures contracts.
Common Stock: Represents part ownership of a company. Holders of common stock have voting rights but no guarantee of dividend payments.
Composite trading: Total amount of trading across all markets in a share that is listed on the New York Stock Exchange or American Stock Exchange. This includes transactions on those exchanges, the five regional exchanges and on the Nasdaq Stock Market.
Compounding: If your investments make 10 percent a year for five years, you earn not 50 percent but 61.1 percent. Here is the reason: as time goes on, you make money not only on your original investment but also on your accumulated gains from earlier years.
Comptroller of the Currency: A Treasury Department official, appointed by the president and confirmed by the Senate, who is responsible for chartering, examining, supervising, and liquidating national banks.
Consumer credit: Money loaned to individuals, usually on an unsecured basis, requiring monthly repayment. Bank loans, credit cards, and installment credit are examples of consumer credit.
Consumer price index (CPI): A gauge of inflation that measures changes in the prices of consumer goods. The index is based on a list of specific goods and services purchased in urban areas. It is released monthly by the Labor Department
Convertible bond: A bond that investors may exchange for stock at some future date under certain conditions.
Corporate bonds: Bonds issued by corporations.
Corporation: A business entity treated as a person in the eyes of the law. It is able to own property, incur debts, sue, and be sued.
Correction: A reverse movement, usually downward, in the price of an individual stock, bond, commodity, index, or the stock market as a whole.
Cost basis: In accounting, the valuation of an asset that includes the cost of the asset and factors in items like depreciation, capital gains, and dividends.
Cost of living: Level of prices of goods and services required for a reasonable standard of living.
Cost-push inflation: A sustained rise in prices caused by businesses passing on increases in costs, especially labor costs, to purchasers.
Coupon: The interest rate specified on a bond when it is originally issued.
Covered: An investment strategy in which the seller owns the underlying security.
Credit ratings: Formal evaluation of a government or company’s credit history and ability to repay its debts
“Curbs In”: An indication that trading curbs have been installed on the New York Stock Exchange
Currency: Money that circulates in an economy. Also refers to a country’s official unit of exchange.
Current Ratio: A measure of a company’s liquidity, or its ability to pay its short-term debts. Calculated by dividing current assets by current liabilities
Current Yield: A measure of an investor’s return on a bond. Calculated by dividing the coupon rate by the purchase price, then multiplying by $1,000.
Cyclical stocks: Shares that tend to rise during an upturn in the economy and fall during a downturn.
D
Day Order: An investor’s order to buy or sell that will be cancelled by the end of the day if not filled.
Debenture: A bond backed only by a corporation’s good credit, not by specific collateral.
Debt: Securities such as bonds, notes, mortgages, and other forms of paper that indicate the intent to repay an amount owed.
Default: Failure to pay principal or interest on a financial obligation. It can also refer to a breach or nonperformance of the terms of a debt instrument.
Defensive securities: Stock of companies whose earnings tend to grow despite the business cycle (e.g., food and drug firms), or of companies that pay relatively high dividends, like utilities
Deflation: A decline in the general price level of goods and services that results in increased purchasing power of money. The opposite of inflation.
Delta: A measure of the price change relationship between and option and its underlying asset.
Depreciation: A decline in value. In accounting, a reduction of earnings to write off the cost of an asset over its estimated useful life.
Depression: A severe downturn in an economy that is marked by falling prices, reduced purchasing power, and high unemployment.
Derivative: A financial product whose value is derived from an underlying financial asset, such as stocks, bonds, currencies, or mortgages. Derivatives may be listed on exchanges or traded privately over the counter. For example, derivatives may be futures, options, or mortgage backed securities.
Direct Purchase Plans (DPP): Direct Purchase Plans allow you to buy stock directly from the company that issues the stock.
Discount: In general, the amount by which one security price is less than another. In financing, it is the interest withheld when a note, draft, or bill is purchased
Discount brokers: Brokers who charge lower commissions than full-service brokers and usually limit their service to trade execution
Discount rate: The interest rate charged by the Federal Reserve on loans to banks.
Disinflation: A slowdown in the rate of price increases. Disinflation occurs during a recession, when sales drop and retailers are unable to pass higher prices along to consumers.
Diversification: Spreading investments among different types of securities to lessen risk.
Dividend Reinvestment Plans (DRIPs): A program offered by companies to allow the automatic reinvestment of stockholder dividends in additional shares.
Dividends: A portion of a company’s income paid to shareholders as a return on their investment
Dividend yields: A company’s annual dividend expressed as a percentage of its current stock price.
Dollar-cost averaging: A strategy to invest fixed amounts of money in securities at regular intervals, regardless of the market’s movements.
Dow Jones averages: There are four Dow Jones averages that track price changes in various sectors. The Dow Jones Industrial Average tracks the price changes of the stock of 30 industrial companies. The Dow Jones Transportation Average monitors the price changes of the stocks of 20 airlines, railroads and trucking companies. The Dow Jones Utility Average measures the performance of the stock of 15 gas, electric and power companies. The Dow Jones 65 Composite Average monitors the stock of all 65 companies that make up the other three averages.
Dow Jones Equity Market Index: Index that measures price changes in more than 100 U.S. industry groups. The stocks in the index represent about 80 percent of U.S. market capitalization and trade on the New York Stock Exchange, the American Stock Exchange, and the NASDAQ Stock Market. The equity-market index is market-capitalization weighted, which means that a stock’s influence on the index is proportionate to its size in the market.
Dow Jones Global Indexes: Some 2,700 companies’ stocks in 29 countries worldwide are tracked by geographic region and by 120 industry groups. Collectively, they represent more than 80 percent of the equity capital on stock markets around the world. All of the indexes are weighted by market capitalization, which is the product of price times shares outstanding. Thus, each country carries a weight proportionate to the relative value of its equities the total value of world equities. The U.S. market is the world’s biggest, and the U.S. component of the global indexes has the most-more than 700.
Dow Jones Industrial Average (DJIA): Often referred to as the Dow, this is the best known and most widely reported indicator of the stock market’s performance. The Dow tracks the price changes of 30 mostly industrial stocks traded on the New York Stock Exchange. Their combined market value is roughly equal to 20 percent of the market value of all U.S. stocks and 25 percent of those listed on the New York Stock Exchange.
Dow Jones World Stock Index: An index that measures the performance of more than 2,000 companies worldwide that represent more than 80 percent of the equity capital on 25 stock markets.
Duration: A calculation measuring the expected life of a fixed income security. It estimates the time required to collect a fixed income security’s payments of the principal and interest.
E
Earnings: Income after a company’s taxes and all other expenses have been paid. Also called profit or net income.
Earnings per share: The amount of earnings allocated to each share of common stock. Calculated by dividing earnings by the number of shares outstanding.
Earnings yield: A company’s per-share earnings expressed as a percentage of its stock price. This provides a yardstick for comparing stocks with bonds, as well as with other stocks.
Economic indicators: Key statistics used to analyze business conditions and make forecasts
Education IRA: Education IRA’s are available to help finance a child’s education. Contributions of up to $2,000 may be made in any given year, depending on income. Now called the Coverdell Education Savings Account.
Emerging markets: Financial markets in nations that are developing market-based economies, such as in Latin American and China.
Employee Stock Ownership Plan (ESOP): A program encouraging employees to buy stock in their company and thereby have a greater stake in its financial performance.
Equity: In property, it is the difference between the property’s current market value and the claims against the property. In securities markets, it is the part of a company’s net worth that belongs to shareholders.
Estate taxes: Taxes levied by the federal and state governments on the transfer of your assets after you die. Uncle Sam levies estate taxes on the worldwide assets of both U.S. citizens and U.S. residents.
Euro: The currency of the 12 countries in the new European Union.
Eurobonds: Corporate or government bond denominated in a currency other than the currency of the issuer
Eurocurrency: Any currency held in a bank outside the country of origin.
Eurodollars: Dollar-denominated deposits in banks outside the U.S.
European-style option: An option that may be exercised only on its expiration date.
European Union: An intergovernmental organization of 15 Western European nations crated under the Maastricht treaty of December 1991 with its own institutional structures and decision-making framework. Before the Maastricht treaty went into effect in November 1993, the organization was known as the European Community or the Common Market. Its member’s are Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom. Its council of ministers and the European Commission are based in Brussels, Belgium, and its parliament is based in Strasbourg, France. Also called the EU.
Exchange: A centralized place for trading securities and commodities, usually involving an auction process.
Exchange Traded Funds (ETFs): Similar to regular mutual funds, these track major indices. Unlike mutual finds which can only transact business at the end of the day, exchange traded funds can be bought or sold at any time. Also, unlike a mutual fund, an ETF can be sold short and bought on margin.
Ex-dividend: The time period between the announcement and the payment of a dividend. New investors in the stock in this period are not entitled to receive the dividend the stock trades lower than on the first day of this time. On this day the stock is said to go ex-dividend.
Executor: The person named in a will to handle the settlement of the estate.
Expense ratio: This figure tells you how much a mutual fund charges each year as a percentage of total fund assets. A fund with a 1.55 percent expense ratio, for instance, levies $1.55 for every $100 it has under management. Included in this figure are the fund’s management fee, shareholders servicing costs, and any annual 12b-1 fee. A 12b-1 fee, which is named after the applicable Securities and Exchange Commission regulation, is levied to pay for the cost of attracting new investors to the fund. The fee may be used to buy advertising or to compensate brokers who sell the fund.
Expiration Date: The date after which an option may no longer be exercised
F
Face value: The monetary value of a bond printed on its face. Face value and market value often differ.
Fair value: A mathematical relationship between the futures and the S&P 500 index.
Federal debt: The amount of debt sold by the federal government to fund past deficits
Federal deficit: Money owed by the federal government when spending exceeds tax revenues collected
Federal funds rate: The interest rate banks charge on overnight loans to bank that need more cash to meet bank reserve requirements. The Federal Reserve sets the interest rate.
Federal Reserve: The central bank of the U.S. that sets monetary policy. The Federal Reserve oversees money supply, interest rates, and credit with the goal of keeping the U.S. economy and currency stable. Governed by a seven-member board, the system includes 12 regional Federal Reserve Banks, 25 branches, and all national and state banks that are part of the system. Also called the Fed.
Financial planner: A type of financial adviser ideally one with broad knowledge of all areas of personal finance. But no particular training or credentials are required of investment and insurance products.
Fiscal year: The 12-month period that a corporation or government uses for bookkeeping purposes.
529 College Savings Plan: Managed by individual states, 529 plans let adults earmark large upfront contributions for college-up to $250,000, depending on the individual state plan.
Flexible spending account: An employee benefit offered by many companies that allows employees to have pretax dollars withheld from their salaries to pay for unreimbursed medical expenses and dependent-care expenses, such as babysitting or elder care.
Float: In securities, the number of outstanding shares in a corporation available for trading by the public. Also, the time between the deposit of a check in a bank and the check’s payment.
Floater: An insurance policy that covers specific items of personal property, such as jewelry.
Floating an issue: Offering stocks or bonds to the public for the first time. It can be an initial public offering or an offering of issues by companies that are already public.
Foreign exchange: Money instruments used to make payments between countries.
Foreign exchange markets: Market in which foreign currencies are bought and sold and exchange rates between currencies are determined.
Forward exchange rate: A currency exchange contract that traders have agreed upon for a future date. The forward rate is usually for one, two, three, or six months, and is referred to as 30-day forward, 60-day forward, etc.
Forward trading: Trade, usually at the current price, in which actual delivery and settlement is made at a future date. Forward trade occurs in the commodity, foreign exchange, stock, bond, and futures markets.
401k plan: An employer-sponsored retirement-savings plan funded by employees with contributions that are deducted from pretax pay. Employers frequently add matching contributions up to a set limit.
403b plan: A retirement savings plan for employees of colleges, hospitals, school districts, and nonprofit organizations. The plan, which is similar to the 401k plan offered to many corporate employees, is funded by employees with contributions that are deducted from pretax pay.
Friendly takeover: An acquisition of one company by another in which the boards of both companies agree to the terms of the transaction.
Full-service brokers: Brokers who execute buy and sell orders, research investments, help investors develop and meet investment goals, and give advice to investors. They charge commissions for their work.
Fundamental analysis: Analysis technique that looks at a company’s financial condition, management, and place in its industry to predict its stock price movement.
Funds of funds: Funds of funds take proceeds from investors and, in turn, invest that money into other mutual funds.
Futures: An agreement to purchase or sell a given quantity of a commodity, security, or currency at a specified date in the future. Also called a futures contract.
Futures option: An option on a futures contract.
G
General-obligation bond: A municipal government bond that is approved either by the voters or their legislature. The government’s promise to repay the principal and pay the interest is constitutionally guaranteed, based on its ability to tax the population.
Gift tax: Federal taxes owed on gifts if they exceed both the annual limit of $10,000 per recipient and the $600,000 lifetime unified credit.
Gross domestic product (GDP): The total value of goods and services produced by a nation. In the U.S. it is calculated by the Commerce Department, and it is the main measure of U.S. economic output.
Gross spread: The difference between the price that investors are charged for the security, and the amount of proceeds that are paid to the issuer.
Growth: This world label is applied both to a type of mutual fund and to a style of investing. Growth funds invest for capital gains-the profit that you make when you sell an investment for more than your cost.
Growth fund: A mutual fund that invests in the common stock of well-established companies. The aim of a growth fund is to buy stocks whose share price will increase over time.
Guaranteed investment contracts (GICs): Investments offered by insurance companies that promise preservation of principal and a fixed rate of return. Individuals invest in GICs through 401ks and other retirement plans.
H
Hard assets: Also known as tangible assets, these investments tend to perform well when the inflation rate is picking up. Gold and other precious metals are among the best-known hard assets.
Hedge funds: Little-regulated private investment partnerships for large investors. They wager huge sums in global currency, bond and stock markets.
Hedging: Buying or selling a product or a security to offset a possible loss from adverse movements in securities prices or interest rates.
Home-equity debt: Borrowing secured by a homeowner’s equity in a home. Home-equity loans allow you to borrow a certain amount and pay it back over a specified term, and they generally carry fixed interest rates. Home-equity lines of credit allow you to draw upon them as needed, and they usually carry adjustable rates.
Hostile takeover: An acquisition of one company by another over the objections of the target company’s board. Often an acquirer will take its transaction directly to the shareholders of the target company, offering to buy their shares through a tender offer, or seeking their approval to remove opposing members from the target company’s board.
Hot issue: A stock that attracts attention because its share price has risen substantially, and in many cases is expected to rise further.
I
Incentive stock options: A compensation plan that gives executives the right to purchase stock at a specified price during a specific period of time. The options are free of tax when they are granted and when they are exercised.
Income bond fund: A mutual fund that seeks a high level of steady income by investing in a mix of corporate and government bonds.
Income equity fund: A mutual fund that seeks a high level of steady income by investing in stocks of companies with consistent records of paying dividends.
Income fund: A mutual fund that seeks a high level of current income by investing in income producing securities, including both stocks and bonds. Certain types of stocks that generate income are also known as income stocks.
Income statement and balance sheet: Located inside a company’s annual report, the income statement and balance sheet are a comprehensive itemization of the company’s financial activities.
Index arbitrage: Buying or selling baskets of stocks while at the same time executing offsetting trades in stock-index futures. For example, if stocks are temporarily cheaper than futures an arbitrager will buy stocks and sell futures to capture a profit on the difference or spread between the two prices.
Index fund: A mutual fund that seeks to produce the same return that investors would get if they owned all the stocks in a particular stock index, often the Standard and Poor’s 500 stock index.
Indexing: Buying and holding a mix of stocks that match the performance of a broad stock market barometer such as the Standard and Poor’s 500 stock index.
Index option: An agreement that gives an investor the right but not the obligation to buy or sell the basket of stocks represented by a stock-market index at a specific price on or before a specific date. Index options allow investors to trade in a particular market or industry group without having to buy all the stocks individually.
Individual Retirement Account (IRA): A tax-deferred plan that can help build a retirement nest egg. Individuals whose income is less than a certain amount or who are not active participants in an employer’s retirement plan generally can deduct some or all of their annual IRA contributions when figuring their income tax. Others can make nondeductible IRA contributions.
Inflation: A sustained rise in prices in an economy
Initial public offering: The first time a company issues stock to the public. This process is often called “going public.”
Insider: A person, such as an executive or director, who has information available to the public. In another respect, it refers to the illegal trading of securities by any investor based on information not available to the public.
Insider trading: In one respect, it refers to the legal trading of securities by corporate officers based on information available to the public. In another respect, it refers to the illegal trading of securities by any investor based on information not available to the public.
Istinet: An electronic securities broker through which large institutional firms and broker-dealers can trade stocks.
Intermediate-term bonds: Bonds that mature in five to ten years
International Monetary Fund: An organization that makes loans and provides other services intended to stabilize worth currencies and promote orderly and balanced trade. Member nations may obtain foreign currency when needed, making it possible to make adjustments in their balance of payments without currency depreciation.
In-the-money: A term used to describe an option that is worth something if exercised immediately. In the case of a call option, it means the current price is higher than the strike price. In the case of a put option, it means the current price is below the strike price.
Investment grade: An assessment of a debt issue by credit-rating firm that indicates investors are expected to receive principal and interest payments in full and on time.
J
Junior security: A security that has lower priority in claims on assets and income than other securities.
Junk bonds: High-yield bonds that credit-rating agencies consider speculative. The bonds typically offer higher yields and carry higher risk than bonds with investment-grade ratings.
K
Keogh plan: A tax-deferred retirement-savings plan for small-business owners or self-employed people who have earned income from their trade or business. Contributions to the Keogh plan are tax deductible
Kiddie tax: Special tax treatment for investment earnings of children under the age of 14.
L
Leading economic indicators: A composite of 10 economic indicators developed to help forecast changes in the economy. The indicators are: money supply, unemployment claims, interest rate spreads, average workweek, consumer expectations, stock prices, building permits, vendor performance, manufacturers’ new orders capital goods and manufacturers’ new orders for consumer goods.
Leverage: The use of borrowed assets by a business to enhance the return on the owner’s equity. The expectation is that the interest rate charged will be lower than the earnings made on the money. In securities markets, leverage refers to money borrowed to cover part of the cost of a purchase.
Leveraged buyout: The purchase of a company by a small group of investors financed largely by debt, often in the form of junk bonds.
Liabilities: The claims against a corporation or other entity. They include accounts payable, wages and salaries, dividends, taxes, and obligations such as bonds, debentures, and bank loans.
Limit order: An order to be filled only at a certain price, or better
Liquidation: The process of converting stock or other assets into cash. When a company is liquidated, the cash obtained is first used to pay debts and obligations to holders of bonds and preferred stock. Whatever cash remains is distributed on a per-share basis to the holders of common stock.
Liquidity: The ease of converting an asset to cash
Load: Sales charges on mutual funds and mutual-fund trading
Load funds: Mutual funds that charge a sales commission, as opposed to no-load funds, which do not levy a fee when you buy or sell. Some fund groups that sell directly to the public offer low-load funds, which charge an upfront fee of 2 percent or 3 percent, but most load funds are sold by brokers.
Long-term bonds: Bonds with maturities of more than ten years.
Long-term debt: Debt that must be paid in a year or more
Long-term Equity Anticipation Securities (LEAPS): Options that won’t expire for up to three years. A registered trademark of the Chicago Board Options Exchange.
M
Major Market Index: This stock index encompasses 20 blue chip stocks, including 17 that are also in the Dow Jones Industrial Average. Options and futures are based on this index.
Margin: In the stock market, the amount of cash that must be put up in a purchase of securities. If the margin requirement is 50 percent, the buyer must put up 50 percent of the purchase price; the buyer must borrow the rest
Margin account: A brokerage account allowing customers to buy securities with money borrowed from the brokerage.
Marginal tax rate: The tax rate you would owe on your next dollar of taxable income. This can be highly valuable information when you are making investment decisions
Margin call: A demand upon an investor to put up more collateral for securities brought on credit,. The lender, usually the brokerage firm, makes the call when the equity in the investor’s account falls below the level set by the brokerage.
Margin rate: A constant value added to the index rate of an adjustable-rate mortgage to compute the current interest rate.
Market capitalization: The total market value of a company or stock. Market capitalization is calculated by multiplying the number of shares by the current market price of the shares.
Market maker: In a stock market, a trader responsible for maintaining an orderly market in an individual stock by standing ready to buy or sell shares. On a stock exchange, a market maker is known as a specialist.
Market timing: Shifting money in and out of investment markets in an effort to take advantage of rising prices and avoid being stung by downturns. Few, if any, investors manage to be consistently successful in timing markets.
Match trading: Stock transactions made outside of an auction or negotiation process. Buy and sell orders for the same security, at the same price, are paired and executed, often by computer.
Maturity date: When a bond expires and the loan must be paid back in full
Medicaid: The government program that provides healthcare assistance for older and disabled people
Money market account: A federally insured account available at many banks, credit unions, and savings and loan association.
Money market fund: A type of mutual fund that invests in stable, short-term securities. Money funds are easily convertible into cash, but are not insured by the federal government.
Money supply: Total amount of money made up of currency-in-circulation and checking and savings accounts at banks and savings and loan association.
Mortgage-backed securities: Debt issues backed by a pool of mortgages. Investors receive payments from the interest and principal payments made on the underlying mortgages.
Mortgage bonds: Debt issues secured by a mortgage on the issuer’s property, such as buildings or equipment
Municipal bonds: Bonds issued by local government authorities, including states, cities, and their agencies.
Mutual fund: A fund that pools the money of its investors to buy a variety of securities. Open-end mutual funds sell as many shares as investors want. Closed-end mutual funds offer only a fixed number of shares and usually trade on an exchange.
Mutual fund supermarket: Rather than limiting itself to a particular fund family, a supermarket offers one-stop shopping for funds from various fund families.
N
Naked: An investment strategy in which the seller does not own the underlying security.
NASDAQ: An electronic stock market run by the National Association of Securities Dealers. Brokers get price quotes through a computer network and trade via telephone or computer network.
NASDAQ Composite Index: An index that covers the price movements of all stocks traded on the NASDAQ Stock Market.
NASDAQ National Market: A subdivision of the NASDAQ Stock Market that contains the largest and most actively traded stocks on NASDAQ. Companies must meet more stringent standards to be included in this section than they do to be included in the other major subdivision, the NASDAQ Small-Cap Market.
National Association of Investors Corporation: A group that provides information, education, and other services on setting up and operating a successful investment club.
Net asset value (NAV): For a mutual fund, the NAV is the value of all investments held by the fund, usually expressed in per-share-terms. The NAV is calculated daily at the close of the markets
Net income: The amount left after a company’s taxes and all other expenses have been paid. Also called earnings or profit.
Net worth: The amount by which assets exceed liabilities.
New York Stock Exchange (NYSE): The largest U.S. stock market in terms of capitalization. The total market value of roughly 2,300 companies whose shares are listed there is about $5 trillion. It was founded in 1792.
Nikkei: There are several Nikkei indexes. Most often it refers to the index that is the daily average of 225 large-capitalization stocks on the Tokyo Stock Exchange.
No-load mutual fund: a type of mutual fund that sells its shares at market value without sales charges.
Note: A written promise by a government or corporation to repay a debt on an agreed upon date.
NYSE composite index: An index that covers the price movements of all stocks listed on the New York Stock Exchange.
O
Odd lot: Purchase or sale of securities in any amount less than 100 shares
Open-end mutual fund: A type of fund that issues as many shares as investors demand. Most mutual funds are open-end funds.
Open interest: A measure of liquidity in futures and options. Open interest is the total number of futures contracts or options that have been opened with either a purchase or a sale and not yet closed by an offsetting opposite purchase or sale.
Operating income: Net income derived excluding income derived from sources other than the company’s regular activities and before income deductions. Also called net operating income or net operating loss.
Options: Convey the right, but not the obligation, to buy or sell an underlying security or commodity during a specific time for a specific price. Options are traded on several exchanges, including the Chicago Board of Options Exchange, the American Stock Exchange, the Philadelphia Stock Exchange, the Pacific Stock Exchange, and the New York Stock Exchange.
Option series: A number of options on the same underlying stock that have the same strike price and expiration month.
Out-of-the-money: A term used to describe an option worth nothing if exercised immediately. In the case of a call option, it means the strike price is higher than the current price of the underlying security. In the case of a put option, it means the strike price is lower than the current price of the underlying security.
Over-the-counter (OTC) derivative: A financial contract, whose value is designed to track the return on stocks, bonds, currencies or some other benchmark, that is traded over-the-counter or off organized exchanges, and usually by telephone.
Over-the-counter market: A market in which securities transactions are conducted by dealers through a telephone and computer network connecting dealers in stocks and bonds. Also called OTC trading.
Over-the-counter (OTC) securities: Securities which trade via dealers through negotiation of price rather than through the use of an auction system such as on a stock exchange.
P
Par value: The face value of a security.
Payment date: The date on which a stock’s dividend or a bond’s interest payment is scheduled to be paid
Payout ratio: The percentage of earnings paid to shareholders as dividends.
Penny stocks: Many penny stocks do indeed have a share price of less than $1, but this informal designation now often includes stocks that are priced at $5 and below.
Personal Financial Specialist: financial planning designation given to qualifying accountants by the American Institute of Certified Public Accountants, based in New York.
Pink Sheets: Daily listing of prices of OTC securities not traded on the NASDAQ. Published by the National Quotation Bureaus Inc on pink paper. Now available electronically on the OTC bulletin board.
Ponzi scheme: A fraudulent scheme. It is a specific form of pyramiding in which money paid by later investors or contributors is used to pay inflated returns to earlier investors-until the funds dry up because no more contributors can be found.
Portability: Term that means you can roll over all the proceeds from one 401k into another plan when you change jobs.
Portfolio: A collection of securities held by an investor
Portfolio insurance: A method of hedging, or protecting, the value of a stock portfolio by selling stock index futures contracts when the stock market declines. The practice was a major contributor to the October 1987 stock market crash.
Precious metals: Commodities such as gold and sliver that are used as investment instruments.
Preferred stock: shares of a company that have no voting rights but do have a set, guaranteed dividend payment. Preferred stockholders are entitled to receive their money before common stockholders in the event of company liquidation.
Premium: In general, the amount by which one security price exceeds another security price.
Price/Sales ratio (P/S): A stock price measured against a company’s sales.
Price-to-book ratio (P/B): A company’s stock price divided by its per-share book value. If a company’s stock is trading below book value, which may mean the shares are undervalued.
Price-to-earnings ratio (P/E): A ratio to evaluate a stock’s worth. It is calculated by dividing the stock’s price by an earnings-per-share. If calculated with the past year’s earnings, it is called the trailing P/E. If calculated with an analyst’s forecast for new year’s earnings, it is called a forward P/E. Also called the P/E ratio or multiple.
Pricing: The job of the underwriter to determine the offering price for a sale of securities to investors.
Prime rate: The interest rate banks charge their most creditworthy commercial customers. Banks use the prime as a base to set rates for credit cards, home equity loans, and other loans, including loans to small and medium-sized businesses.
Private placement: The sale of stocks or other investments directly to an investor. The securities in a private placement don’t have to be registered with the Securities and Exchange Commission.
Profit: The amount left after a company’s taxes and all other expenses have been paid. Also called net income or earnings.
Profit margin: A measure of a company’s profitability, cost structure, and efficiency, calculated by dividing profits by sales. Gross profit margins are based on gross profits-sales minus the cost of producing the goods sold. Pretax profit margins are based on pretax profits-sales minus all operating expenses. After-tax profit margins are based on after-tax profits-sales minus operating expenses and taxes.
Profit-sharing plan: A retirement plan funded by employer contributions that are based on a share of the company’s profits. Employees are frequently responsible for managing the money themselves, selecting from such investments as mutual funds, company stock, and guaranteed investment contracts. Investment gains are not taxed until the money is withdrawn.
Profit-taking: Selling securities after a recent, often rapid price increase.
Program trading: Stock trades involving the purchase or sale of a basket including 15 or more stocks with a total market value of $1 million or more. Most program trades are executed on the New York Stock Exchange, using computerized trading systems. Index arbitrage is the most prominently reported type of program trading.
Prospectus: A formal, written offer to sell securities that sets for the plan for a proposed or existing business. The prospectus must be filed with the Securities and Exchange Commission and given to prospective buyers. A prospectus includes information on a company’s finances, risks, products, services, and management.
Proxy: Written authorization given by a shareholder to someone else to vote on the shareholder’s behalf at the company’s annual meeting.
Proxy fight: A contest for control of a company in which one or more companies, groups, or individuals seek proxies from a company’s shareholders to back a takeover attempt.
Proxy statement: A document mailed with a proxy that gives information about the company or group seeking the proxy votes and matters scheduled for consideration at the shareholders meetings.
Public company: A company that sells shares of its stock to the public. Public companies are regulated by the Securities and Exchange Commission. Also called a publicly held company
Put Option: An agreement that gives an investor the right but not the obligation to sell a stock, bond, commodity, or other instrument at a specified price within a specified time period.
Q
Qualitative analysis: A research technique that deals with factors that cannot be precisely measured such as employee morale and management expertise.
Quant: Slang reference to an analyst who uses quantitative research techniques
Quantitative analysis: A research technique that deals with measurable items such as the value of assets and the cost of capital.
Quote: A price quotation made up of both the bid and the ask price for a security at a given time.
R
Real Estate Investment Trusts (REITs): A trust or association that invests in a variety of real estate. REITs are managed by one or more trustees, like a mutual fund, and trade like a stock. No federal income tax needs to be paid by the trust if 75 percent of the income is real estate related and 95 percent of the income is distributed to investors. Individual investors can be taxed.
Receivables: Found on the balance and income statement, this is what customers owe the company.
Recession: A downturn in economic activity, broadly defined by many economists as at least two consecutive quarters of decline in a nations gross domestic product.
Record date: The date on which a shareholder must own a company’s stock to be entitled to receive a dividend.
Recovery: In a business cycle, the period after a downturn or recession when economic activity picks up and the gross domestic product increases.
Regional exchanges: Securities exchanges located outside of New York City. They include the Boston, Philadelphia, Chicago, Cincinnati, and Pacific stock exchanges. Stocks listed on the New York Stock Exchange or the American Stock Exchange also may trade on regional exchanges.
Registered investment advisor: Someone who has received approval from the Securities and Exchange Commission to give financial advice to clients for a fee.
Registered representative: The official term for a stockbroker or account executive with a brokerage firm.
Repurchase agreement: An agreement between a bank and an investor for the bank to borrow money from the investor for a short time, usually less than 90 days. Repurchase agreements are widely used on the money market by government’s central banks. Also called a repo or buy back.
Return on equity: A measure of how much the company earns on the investment of its shareholders. It is calculated by dividing a company’s net income by its common shareholders’ equity.
Return on investment: A measure of how much the company earns on the money the company itself has invested. It is calculated by dividing the company’s net income by its net assets.
Revenue: Money a company takes in, including interest earned and receipts from sales, services provided, rents, and royalties.
Revenue bond: A bond backed only by revenue from the airport, roadway or other facility that was built with the money it raised.
Rights offering: Offering of rights to existing shareholders of a company to additional shares, usually at a discount to the market price. The shares can be actively trading.
Roth IRAs: As opposed to traditional IRAs that tax with-drawls, all proceeds from Roth IRAs may be withdrawn tax-free. They also have more liberal deposit guidelines.
Round lots: 100-share increments of stock
Russell 2000: A small-capitalization stock index. It consists of the 2,000 smallest securities in the Russell 3000.
S
Secondary market: Market for issues that we were previously offered or sold.
Secondary offering: The sale to the public of a usually large block of stock that is owned by an existing shareholder.
Sector funds: Mutual funds that invest in a single-industry sector, such as biotechnology, gold, or regional banks. Sector funds tend to generate erratic performance, and they often dominate both the top and bottom of the annual mutual fund performance charts.
Securities and Exchange Commission (SEC): The federal agency that enforces securities laws and sets standards for disclosure about publicly traded securities, including mutual funds. It was created in 1934 and consists of five commissioners appointed by the president and confirmed by the senate to staggered
terms.
Securities Investor Protection Corporation (SIPC): The nonprofit corporation that insures the securities and cash in the customer accounts of brokerage firms up to $500,000 in the event a firm fails. All brokers and dealers registered with the Securities and Exchange Commission are required to be members.
Security: A financial instrument that indicates the holder owns a share or shares of a company (stock) or has loaned money to a company or government organization (bond).
Sell-off: A period of intensified selling in a market that pushes prices sharply lower.
Share: An investment that represents part ownership of a company or a mutual fund.
Short: Buying and then selling securities that one does not own, expecting a drop in prices.
Short covering: Trades that reverse, or close out, short-sale positions. In the stock market, for instance, shares are purchased to replace the shares are purchased to replace the shares previously borrowed.
Short interest: Total number of shares of a given stock that have been sold short and not yet repurchased.
Short-term gain or loss: For tax purposes, the profit or loss from selling capital assets or securities held six months or less. Short-term gains are taxed at the highest ordinary income-tax rate.
Simplified Employee Pension (SEP): A retirement plan for the self-employed that is also referred to as a SEP-IRA
Small-capitalization stocks: Shares of relatively small publicly traded corporations, typically with a total market value, or capitalization, of less than $600 million. Also called small-cap stocks or small caps.
Socially responsible funds: These funds stick to companies that they deem to be of reputable social value. That mans some funds will avoid investing in companies dealing in nuclear power, alcohol, or tobacco.
Specialist: A stock exchange member who is designated to maintain a fair and orderly market in a spe3cific stock. He is required to buy and sell for his own account to counteract temporary imbalances in supply and demand.
Spin-off: The distribution to a company’s shareholders of the stock in a division or subsidiary.
Split: This represents a division of an existing stock. For instance, if a company declares a 2-for-1 split, this effectively divides the stock price in half.
Spot Market: A market for buying or selling commodities or foreign exchange for immediate delivery and for cash payment.
Spread: In stocks, the difference between the bid and asked prices. In fixed-income securities, the difference between the yields on securities of the same quality but different maturity or the difference between the yields on securities of the same maturity but of different quality.
Stagflation: The combination of high inflation and slow economic growth
Standard & Poor’s 500 stock index: A benchmark index of 500 large stocks, maintained by Standard & Poor’s a division of McGraw-Hill Co. Also called the S&P 500
Stock: An investment that represents part ownership of a company. There are two different types of stock: common and preferred. Common stocks provide voting rights but no guarantee of dividend payments. Preferred stocks provide no voting rights but have a set, guaranteed dividend payment. Also called shares.
Stock appreciation rights: An executive compensation plan, usually linked to stock options, that gives recipients the opportunity to benefit from a rise in the company’s stock price without exercising the options. Stock-appreciation-rights payments can be in cash, an equivalent amount of stock or some combination of the two.
Stock-index futures: A contract to buy or sell the cash value of a stock index by a specified date.
Stock-index option: An agreement that gives its holder the right, but not the obligation, to buy or sell a specified amount of an underlying investment-a stock-index futures contract or the cash value of a stock index-by a given date at a given price.
Stock option: An agreement allowing an investor to buy or sell stock within a stipulated time and for a certain price. Also, it is a method of employee compensation that gives workers the right to buy the company’s stock during a specified period of time at a stipulated exercise price.
Stop order: An investor’s order to a broker to buy or sell a security when its market price reaches a certain level.
Straddling: An investor buys a call and a put on the same underlying investment.
Strike price: A specified price at which an investor can buy or sell an option’s underlying security
Strip: The practice of splitting a bond’s principal and coupon (the interest rate that the bond issuer’s promises to pay) and then selling them separately. The Treasury issues one variation, known as Strips, an acronym for Separate Trading of Registered Interest and Principal of Securities.
Subordinated debenture: A debt security that will be paid off after the issuer first pays off debt to senior creditors in the event of the dissolution of the company.
SuperDOT: An electronic system used to route buy and sell orders to the floor of the New York Stock Exchange. Among other things, it is used to execute computerized program trades. SuperDOT handles about 80 percent of all orders entered at the exchange. DOT is an acronym for Designated Order Turnaround.
Swap: An investor sells one security and simultaneously buys another.
T
Technical analysis: Research of a security or market sector that uses trading data, such as volume and price trends, to make predictions.
Ticks: The smallest allowable movement in the price of a security or index. A downtick is the sale of a security at a price below the preceding deal. An up tick is a sale executed at a price higher than the preceding sale.
Tokyo Stock Price Index: Index of the larger issues on the Tokyo Stock Exchange. Also called TOPIX
Total return: Annual gains or losses on an investment, reflecting dividends, interest, and price fluctuation.
Traders: People who negotiate prices and execute buy and sell orders, either on behalf of an investor or for their own account.
Trading Curbs: One of several “circuit breakers” adopted by the NYSE and approved by the Securities and Exchange Commission in response to the big market decline in October 1987.
Treasuries: Securities (notes or bills) issued by the U.S. government. A treasury bill is a certificate representing a short-term loan to the federal government that matures in 3 to 6 months. A Treasury note matures in 2 to 10 years.
Triple-witching hour: Slang for the quarterly expiration of stock-index futures, stock-index options and options on individual stocks. Trading associated with the expirations inflates stock market volume and can cause volatility in prices. Occurs on the third Friday of March, June, September, and December.
Turnover: In accounting terms, the number of times an asset is replaced during a set period. In trading, the volume shares traded on the exchange on a given day. In employment matters, turnover refers to the total number of employees divided by the number of employees replaced during a certain period. In the U.K., the term refers to a company’s annual sales volume.
U
Underwriter: In the securities business, a company that for a fee or other securities to market. The underwriter buys all or most of the issue, then resells it to investors.
Uniform Gifts to Minors Act and Uniform Transfers to Minors Act: Accounts governed by these acts allow a minor child to own property. The account is managed by a custodian until the child reaches the age of majority. State law determines both the type of account and the age when the child gains control of the assets.
Unit Investment Trust: A fixed portfolio of stocks or bonds with a specific maturity date. Generally sold by brokers.
U.S. Savings bonds: Series of EE savings bonds are issued by the federal government and sold by most banks, credit unions, and savings and loan associations. They also are available through payroll-deduction plans offered by many employers. Interest is exempt from state and local taxes.
V
Value averaging: A variation on dollar-cost averaging. Instead of investing the same amount of money every time, each investment is adjusted to a prearranged schedule.
Value investing: Value investors are the stock market’s bargain hunters. They often lean toward beaten-down companies whose shares appear cheap when compared to current earnings or corporate assets. Value investors typically buy stocks with high dividend yields, or ones that trade at a low price-to-earnings ratio or low price-to-book value.
Value Line Composite Index: A gauge that covers about 1,700 stocks tracked by the Value Line Investment Survey that are traded on the New York Stock Exchange, the NASDAQ Stock Market, and the American Stock Exchange.
Vesting: With regard to 401ks, this is the time allowed before company matching contributions actually become the employee’s property.
Volatility: The characteristic of a security or market to fall or rise sharply in price in a short-term period.
Volume: Number of shares traded in a company or an entire market during a given time period.
W
Warrant: A security that allows an investor to purchase an amount of stock at a specified price within a certain time period.
Wilshire 5000 Stock Index: Broadest index covering NASDAQ Stock Market stocks and all stocks traded on all the New York Stock Exchange and American Stock Exchange. It is a market-value weighted index.
Wrap account: An investment plan that wraps together money management and brokerage services. Wrap plans are popular for their simplicity. For one all inclusive annual fee, an investment firm provides the services of a professional money manager who creates a portfolio of stocks and bonds, or mutual funds, and takes care of all the trading.
Writer: In the options market, the seller of put and call options.
Y
Yield: The annual rate of return on an investment, as paid in dividends or interest. It is expressed as a percentage, generally obtained by dividing the current market price for a stock or bond into the annual dividend or interest payment.
Yield curve: The relationship, plotted on a graph between yield and maturity among bonds of different maturities and the same credit quality, most often Treasuries. A normal or positive yield curve slopes upwards, with short term rates lower than long term rates, while an inverted yield curve is the opposite and slopes downwards.
Yield to maturity: Rate of return on a bond if held to maturity. The formula includes the market price, principal paid at maturity, coupon rate and years remaining until maturity.
Z
Zero-coupon bond: A bond sold at a deep discount. It does not pay periodic interest payments to investors; instead, investors receive their return on investment at maturity.
