Ch. 14-15 Annuities & Sinking Funds / Building Wealth Through Investments

ANNUITY

A contract between a person (the annuitant) and an insurance company (the insurer) for receiving and disbursing money for the annuitant or the beneficiary of the annuitant

ACCUMULATION PHASE OF AN ANNUITY

The time when money is being paid into the fund and earnings are being added to the fund

LIQUIDATION OR PAYOUT PHASE OF AN ANNUITY

The time when the annuitant or beneficiary is receiving money from the fund

CONTINGENT ANNUITY

An annuity paid over an uncertain number of periods

ORDINARY ANNUITY

An annuity for which payments are made at the end of each period

ANNUITY DUE

An annuity for which payments are made at the beginning of each period

ANNUITY CERTAIN

An annuity being paid over a guaranteed number of periods

PENSION

An arrangement to provide people with an income when they are no longer earning a regular income from employment, typically provided by an employer

DEFINED BENEFIT PLAN

A plan that guarantees a certain payout at retirement according to a fixed formula that usually depends on the member’s salary and the number of years’ membership in the plan

DEFINED CONTRIBUTION PLAN

A plan that provides a payout at retirement that is dependent on the amount of money contributed and the performance of the investment vehicles utilized

401(K) PLAN

A defined contribution retirement plan for individuals working for private-sector companies

403(B) PLAN

A defined contribution retirement plan designed for employees of public education and most other nonprofit organizations

TRADITIONAL IRA

An individual retirement arrangement is a personal savings plan that allows you to set aside money for retirement. Contributions are typically tax-deductible in the year of the contribution, and taxes are deferred until contributions are withdrawn

ROTH IRA

An IRA where contributions are NOT tax-deductible, but qualified distributions are tax free when withdrawn

SINKING FUND

A payment into an ordinary annuity to yield a desired future value

PRESENT VALUE OF AN ANNUITY

The amount needed in a fund so that the fund can pay out a specified regular payment for a specified amount of time

STOCK OR EQUITY

The distribution of ownership of a corporation. Partial ownership can be purchased through various stock markets

SHARE

One unit of ownership of a corporation

PUBLICITY HELD CORPORATION

A company that has issued and sells shares of stock or securities through an initial public offering. These shares are traded through at least one stock exchange

PUBLICITY TRADED

A company’s stock is said to be this if the company has issued securities through an initial public offering and these securities are traded on at least one stock exchange or over-the-counter market

PRIVATELY HELD CORPORATION

A company that is privately owned and does not meet the strict Securities and Exchange Commission filing required of publicly held corporations. Private corporations may issue stock and the owners are shareholders

FACE VALUE (PAR VALUE)

The value of one share of stock or a bond (a bond is usually $1,000)

STOCK CERTIFICATE

A certificate of ownership of stock issued to the buyer

DIVIDEND

A portion of the profit of a company that is periodically distributed to the stockholders of a company

PREFERRED STOCK

A type of nonvoting stock that provides for a specific dividend that is paid before any dividends are paid to common stockholders and which takes precedence over common stock in the event of a company liquidation

COMMON STOCK

A type of stock that gives the stockholder voting rights. After dividends are paid to preferred stockholders, the remaining dividends are distributed among the common stockholders

STOCK MARKET

The structure for buying and selling stock

COMMON STOCK

A type of stock that gives the stockholder voting rights. After dividends are paid to preferred stockholders, the remaining dividends are distributed among the common stockholders.

STOCK MARKET

The structure for buying and selling stock

TRADE

Either the buying or selling of a stock

STOCK BROKER

The person who handles the trading of stock

STOCK LISTINGS

Information about the price of a share of stock and some historical information that is published in some newspapers and on the Internet

CURRENT YIELD

The ratio of the annual dividend per share of stock to the closing price per share

PRICE EARNINGS (P/E) RATIO

The ratio of the closing price of a share of stock to the annual earnings per share

TRAILING EARNINGS

A company’s earnings-per-share for the past 12 months; found by dividing the company’s after-tax profit by the number of outstanding shares

TRAILING P/E RATIO

A company’s P/E ratio calculated using the company’s trailing earnings per share as the net income per share

LEADING EARNINGS

A company’s projected earnings-per-share for the upcoming 12-month period

LEADING P/E RATIO

A company’s P/E ratio calculated using the company’s leading earnings per share as the net income per share

PARTICIPATING PREFERRED STOCK

A type of preferred stock that allows stockholders to receive additional dividends if the company decides to do so

CONVERTIBLE PREFERRED STOCK

A stock option that allows the stockholder to exchange the stock for a certain number of shares of common stock

CUMULATIVE PREFERRED STOCK

Preferred stock that earns dividends every year

DIVIDENDS IN ARREARS

Dividends that were not paid in a previous year and must be paid to cumulative preferred stockholders before dividends can be distributed to other stockholders

BOND

A type of loan to the issuer to raise money for a company, state, or municipality

ISSUER

A company, state, or municipality that issues bonds to raise money

COUPON

The annual interest paid by the issuer to the lender on a bond

COUPON RATE

The annual payout percentage based on the bond’s par value (original value of the bond)

MATURITY DATE

The date at which the face value of the bond is paid to the bondholder

CREDIT RISK

The possibility that a bond issuer will default by failing to repay principal and interest in a timely manner

INVESTMENT GRADE BOND

A bond with a high probability of being paid with few speculative risks

JUNK BONDS

High-risk bonds that are usually from companies in bankruptcy or in financial difficulty

CORPORATE BONDS

Bonds issued by businesses

MUNICIPAL BONDS

Bonds issued by local and state governments

TREASURY BONDS

Bonds issued by the federal government

REGISTERED BONDS

Bonds for which investors receive interest automatically by being listed with the company

CONVERTIBLE BONDS

Bonds with a provision for being converted to stock

RECALLABLE BONDS

Bonds that can be repurchased by the company before the maturity date

BOND MARKET

The structure for buying and selling bonds

PREMIUM BOND

A bond that sells for more than the face value

DISCOUNT BOND

A bond that sells for less than the face value

YIELD

A measure of the profitability of the investment

YIELD TO MATURITY

Measure profitability over the life of an investment

CURRENT BOND YIELD OR AVERAGE ANNUAL YIELD

The ratio of the annual interest per bond to the current price per bond

SECURITIES

Investments such as stocks, bonds, notes, debentures, limited partnership interests, oil and gas interests, or other investment contracts

INVESTMENT RISK

The potential for fluctuation in the value of an investment, which could result in total loss or a decrease in value

VOLATILITY

Refers to the amount of uncertainty or risk about the changes in a security’s value

PORTFOLIO

A collection of different types of investments, normally owned by an individual

ASSET CLASSES

Different categories of investments that provide returns in different ways

MUTUAL FUND

A collection of stocks, bonds, and other securities that is managed by a mutual fund company

PROSPECTUS

For mutual funds, it is the official document that described the fund’s investment objectives, policies, services and feeds; you should read it carefully before you invest

ADMINISTRATIVE FEE OR MANAGEMENT FEE

A fee that is periodically applied to a mutual fund account that is in addition to the fees charged for buying or selling mutual funds

FRONT-END LOAD MUTUAL FUND

A mutual fund for which the sales charge or commission is applied at the same time of the initial purchase of the shares

BACK-END LOAD

The sales charge or commission on a mutual fund that is paid at the time when shares are sold

BENCHMARK

A standard against which the performance of a security can be measured

DIVERSIFICATION

Dividing your assets on a percentage basis among different broad categories of investments, or asset classes

NET ASSET VALUE (NAV)

The value of one share of a mutual fund

FUND FAMILY

The mutual fund company that offers more than one type of fund

NO-LOAD MUTUAL FUND

A mutual fund that does not charge a fee (no load) for buying and selling its shares