Personal Finance

emergency fund an amount of money you can obtain quickly in case of immediate need
line of credit a short-term loan that is approved before the money is actually needed
speculative investment a high-risk investment made in the hope of earning a relatively large profit in a short time
liquidity the ability to buy or sell an investment quickly without substantially affecting the investment’s value
asset allocation the process of spreading your assets among several different types of investments to lessen risk
government bond the written pledge of a government or a municipality to repay a specified sum of money, along with interest
municipal bond a debt security issued by a state or local government
general obligation bond a bond backed by the full faith, credit, and unlimited taxing power of the government that issued it
revenue bond a bond that is repaid from the income generated by the project it is designed to finance
corporate bond a corporation’s written pledge to repay a specified amount of money with interest
maturity date for a corporate bond, the date on which the corporation is to repay the borrowed money
bond indenture a legal document that details all of the conditions relating to a bond issue
trustee a financially independent firm that acts as the bondholder’s representative
debenture a bond that is backed only by the reputation of the issuing corporation
mortgage bond a corporate bond secured by various assets of the issuing firm
convertible bond a bond that can be exchanged, as the owner’s option, for a specified number of shares of the corporation’s common stock
call feature a feature that allows the corporation to call in, or buy, outstanding bonds from current bondholders before the maturity date
sinking fund a fund to which annual or semiannual deposits are made for the purpose of redeeming a bond issue
serial bond bonds of a single issue that mature on different dates
registered bond a bond that is registered in the owner’s name by the issuing company
registered coupon bond a bond that is registered for principal only, and not for interest
zero coupon bond a bond that is sold at a price far below its face value, makes no annual or semiannual interest payments, and is redeemed for its face value at maturity
yield the rate of return earned by an investor who holds a bond for a stated period of time
current yield determined by dividing the yearly dollar amount of interest by the bond’s current price
common stock the most basic form of corporate ownership
equity financing money received from the owners or from the sale of shares of ownership in a business
dividend a distribution of money, stock, or other property that a corporation pays to stockholders
proxy a legal form that lists the issues to be decided at a stockholders’ meeting and requests that stockholders transfer their voting rights to some individual or individuals
record date the date on which a stockholder must be registered on the corporation’s books in order to receive dividend payments
stock split a procedure in which the shares of stock owned by existing stockholders are divided into a larger number of shares
preferred stock type of stock that gives the owner the advantage of receiving cash dividends before common stockholders are paid any dividends
earnings per share a corporation’s after-tax earnings divided by the number of outstanding shares of a firm’s common stock
price earnings ratio the price of a share of stock divided by the corporation’s earnings per share of stock
dividend yield the yearly dollar amount of dividend generated by an investment divided by the investment’s current price per share
total return a calculation that includes the yearly dollar amount of divided as well as any increase or decrease in the original purchase price of the investment
book value determined by deducting all liabilities from the corporation’s assets and dividing the remainder by the number of outstanding shares of common stock
primary market a market in which an investor purchases financial securities, via an investment bank or other representative, from the issuer of those securities
investment bank a financial firm that assists corporations in raising funds, usually by helping to sell new security issues
initial public offering occurs when a corporation sells stock to the general public for the first time
secondary market a market for existing financial securities that are currently traded among investors
securities exchange a marketplace where member brokers who represent investors meet to buy and sell securities
specialist buys or sells a particular stock in an effort to maintain an orderly market
over the counter market a network of dealers who buy and sell the stocks of corporations that are not listed on a securities exchange
nasdaq an electronic marketplace for stocks issued by approximately 3,200 different companies
account executive a licensed individual who buys or sells securities for clients; also called a stockbroker
churning excessive buying and selling of securities to generate commissions
market order a request to buy or sell a stock at the current market value
limit order a request to buy or sell a stock at a specified price
stop order an order to sell a particular stock at the next available opportunity after its market price reaches a specified amount
dollar cost averaging a long-term technique used by investors who purchase an equal dollar amount of the same stock at equal intervals
different investment plan a plan that allows stockholders to purchase stock directly from a corporation without having to use an account executive or a brokerage firm
dividend reinvestment plan a plan that allows current stockholders the option to reinvest or use their cash dividends to purchase stock of the corporation
margin a speculative technique whereby an investor borrows part of the money needed to buy a particular stock
selling short selling stock that has been borrowed from a brokerage firm and must be replaced at a later date
option the right to buy or sell a stock at a predetermined price during a specified period of time
mutual fund an investment company that pools the money of many investors – its shareholders – to invest in a variety of securities
close ended fund a mutual fund whose shares are issued by an investment company only when the fund is organized
exchange traded fund a fund that invests in the stocks or other securities contained in a specific stock or securities index, and whose shares are traded on a securities exchange or over the counter
open ended fund a mutual fund whose shares are issued and redeemed by the investment company at the request of investors
net asset value the current market value of the securities contained in the mutual fund’s portfolio minus the mutual fund’s liabilities divided by the number of shares outstanding
load fund a mutual fund in which investors pay a commission (as high as 8.5 percent) every time they purchase shares
no load fund a mutual fund in which the individual investor pays no sales charge
contingent deferred sales load A 1 to 5 percent charge that shareholders pay when they withdraw their investment from a mutual fund
12-b-1 fee a fee that an investment company levies to defray the costs of advertising and marketing a mutual fund
expense ratio the amount that investors pay for all of a mutual fund’s management fees and operating costs
family of funds a group of mutual funds managed by one investment company
income dividends the earnings a fund pays to shareholders from its dividend and interest income
capital gains distribution the payments made to a fund’s shareholders that result from the sale of securities in the fund’s portfolio
turnover ratio a ratio that measure the percentage of a fund’s holdings that have changed or “been replaced” during a 12-month period of time
reinvestment plan a service provided by an investment company in which shareholder income dividends and capital gain distributions are automatically reinvested to purchase additional shares of the fund

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