vocab quiz
Margin: a speculative technique whereby an investor borrows part of the money needed to buy a particular stock
Reinvestment plan: A service provided by an investment company in which income dividends and capital gain distributions are automatically reinvested to purchase additional shares of the fund.
Earnings per share: A corporation’s after-tax income divided by the number of outstanding shares of a firm’s common stock.
No-load fund: A mutual fund for which the individual investor pays no sales charge.
Maturity date: For a corporate bond, the date on which the corporation is to repay the borrowed money.
Liquidity: The ability to readily convert financial resources into cash without a loss in value.
Load fund: A mutual fund in which investors pay a commission (as high as 8½ percent) every time they purchase shares.
Market order: A request to buy or sell a stock at the current market price.
Dividend yield: The annual dividend amount divided by the investment’s current price per share.
Corporate bond: A corporation’s written pledge to repay a specified amount of money with interest.
Business cycle: The increase and decrease in a nation’s economic activity.
High-yield bonds: Corporate bonds that pay higher interest but also have a higher risk of default.
Contingent deferred sales load: A 1 to 5 percent charge that shareholders pay when they withdraw their investment from a mutual fund.
Fundamental analysis: An investment practice based on the assumption that a stock’s intrinsic or real value is determined by the company’s future earnings.
Face value: The dollar amount the bondholder will receive at the bond’s maturity.
Debenture: A bond or unsecured debt instrument that is backed only by the reputation of the issuing corporation.
Asset allocation: The process of spreading your assets among several different types of investments (sometimes referred to as asset classes) to lessen risk.
Exchange-traded fund (ETF): A fund that generally invests in the stocks or other securities contained in a specific stock or securities index.
Dividend: A distribution of money, stock, or other property that a corporation pays to stockholders.
Maturity date: For a corporate bond, the date on which the corporation is to repay the borrowed money.
Yield to maturity: A yield calculation that takes into account the relationship among a bond’s maturity value, the time to maturity, the current price, and the dollar amount of interest.
Corporate bond: A corporation’s written pledge to repay a specified amount of money with interest.
Government bond: A written pledge of a government or a municipality to repay a specified sum of money, along with interest.
Rate of return: The percentage of increase in the value of savings as a result of interest earned; also called yield.
Call feature: A feature that allows the corporation to call in, or buy, outstanding bonds from current bondholders before the maturity date.
Secondary market: A market for existing financial securities that are currently traded among investors.
Net value asset (NAV): 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.
Mutual fund: Pools the money of many investors—its shareholders—to invest in a variety of securities.
Preferred stock: A type of stock that gives the owner the advantage of receiving cash dividends before common stockholders are paid any dividends.
Mutual fund: Pools the money of many investors—its shareholders—to invest in a variety of securities.
Portfolio construction: The process of choosing different types of stocks, bonds, funds, and other investment alternatives to obtain larger returns while reducing risk.
Expense ratio: All the different management fees, 12b-1 fees, if any, and fund operating costs for a specific mutual fund.
Capital gain distribution: The payments made to a fund’s shareholders that result from the sale of securities in the fund’s portfolio.
Turnover ratio: The percentage of a fund’s holdings that have changed or “been replaced” during a 12-month period.
Bond indenture: A legally binding contract that details all of the conditions relating to a bond issue.
Dividend payout: The percentage of a firm’s earnings paid to stockholders in cash.
Total return: A calculation that includes the annual dollar amount of dividends as well as any increase or decrease in the original purchase price of the investment.
Limit order: A request to buy or sell a stock at a specified price or better.
Price-earnings ratio: The price of a share of stock divided by the corporation’s earnings per share of 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.
Open-end fund: A mutual fund whose shares are issued and redeemed by the investment company at the request of investors
Emergency fund: An amount of money you can obtain quickly in case of immediate need.
Beta: A measure reported in many financial publications that compares the volatility associated with a specific stock issue with the volatility of the overall stock market or an index like the Standard & Poor’s 500 Stock Index.
Dividend: A distribution of money, stock, or other property that a corporation pays to stockholders.
Securities exchange: A marketplace where member brokers who represent investors meet to buy and sell securities.
Stop-loss order: An order to sell a particular stock at the next available opportunity after its market price reaches a specified amount.
Common stock: The most basic form of ownership for a corporation.
Day trader: An individual who buys and then later sells stocks and other securities in a very short period of time.
Initial public offering (IPO): Occurs when a corporation sells stock to the general public for the first time.
Speculative investment: A high-risk investment made in the hope of earning a relatively large profit in a short time.
Closed-end fund: A fund whose shares are issued by an investment company only when the fund is organized.
12b-1 fee: A fee that an investment company charges to defray the costs of marketing and selling fund shares and commissions paid to brokers who sell shares in the mutual fund.
Expense ratio: All the different management fees, 12b-1 fees, if any, and fund operating costs for a specific mutual fund.
Government bond: A written pledge of a government or a municipality to repay a specified sum of money, along with interest.