testing SEC & INV

FICA

Federal Insurance Contributions Act-it is the money taken out of your paycheck for Social Security and Medicare.

W2

Your employer must send this to you by January 31st. It will show you the total amount of money you made during the year and the totL taxes withheld.

Sales tax

The tax that iis also known as consumption tax. It is a tax on something you buy. It is sometimes used to decrease demand for a particular product.

Excise tax

Taxes on gasoline, cigarettes, airplane tickets and cell phones. Also known as luxury tax.

Property tax

A tax on something you own, like land, your house, a motor home.

Social Security Tax

This tax helps pay for people's retirement.

Income Tax Day is.....

April 15th

Income tax

A progressive tax where people pay on money they get from working and on interest they earn on savings. The tax is different for different people based on their ability to pay.

W4

An employees withholding certificate. This document is used by your employer to determine how much tax to withhold from your paycheck.

1099-INT

A certificate sent to you by the bank telling you how much interest you have earned.

IRS

Internal Revenue Service

Federal Government

The level of government that pays for operations of the government, education, defense, disaster relief.

Local Government

The level of Government that pays for traffic lights and sidewalks in different towns and provides public elementary education.

Tax Deduction

Interest paid on a home loan and giving to charities are examples.

Free

You can get tax forms from the library and the IRS website for this amount.

Federal Income Tax

The largest source of money used by the federal government.

Allowances

Factors that affect the amount of income tax withholding. The more allowances you claim, the less tax your employer will take out.

Exemptions

Tax laws allow some income to be exempt,or excused from tax, based on the number of people in the household. Qualified people may include the taxpayer, a spouse or dependents.

Dependents

Someone who is supported by a taxpayer's income.

Tax deduction

Reduces the amount of income that is taxed.

Itemized deductions

Amounts actually spent on tax-deductible expenses during the year.

Standard deductions

A set amount that the IRS allows without listing any actual expenses.

Taxable income

The portion of your income that is actually subject to income tax.

Tax credit

Subtracted directly from the tax you owe. People might get a tax credit if they are paying for college tuition or child care expenses.

Taxable income

Your total income that comes from form W-2 and 1099.

Community

A group of people with common interests and concern for common good.

How do you benefit from taxes?

You are better off being in a community than by yourself! Taxes pay for roads, parks, schools, things you could never afford by yourself.

Earned income

The money you earn from work you do. You are taxed on this income.

Payroll tax

A tax on earned income that supports the Social Security and Medicare programs.

Medicare

Helps pay for health care for Senior citizens.

Social Security

Income for retirees, people with disabilities and children who have lost a parent.

State Income tax

Pays for state highways and operations of the state government.

Unearned income

The money you earn from interest from your savings account. It is added to your earned income and taxable.

January 31

The date, by law that your employer must send you your W-2

Libraries

Where you can get tax forms and instructions for free. (Also online)

Common stock

the most "junior security" because it ranks last in line at liquidation. An equity or ownership position that usually allows the owner to vote on major corporate issues such as stock splits, mergers, acquisitions, authorizing more shares, etc.

Transfer agent

issues and redeems certificates. Handles name changes, validates mutilated certificates. Distributes dividends, gains, and and shareholder reports to mutual fund investors.

registrar

audits the transfer agent to make sure the number of authorized shares is never exceeded

dividends

money paid from profits to holders of common and preferred stock whenever the Board of Directors is feeling especially generous

Declaration date

the date the Board of Directors declares a dividend

Record date

the date determined by the Board of Directors upon which the investor must be the "holder of record" in order to receive the upcoming dividend. Settlement of a trade must occur by the record date for the buyer to receive the dividend

payable date

the date that the dividend check is paid to investors

regular way settlement

T + 3, trade plus three business days. T + 1 for Treasury securities

T + 3

regular way settlement, trade date plus three business days

Ex-Date

two days before the Record Date of corporate stock. The date upon which the buyer is not entitled to the upcoming dividend. Note that for mutual funds, this date is established by the Board of Directors, usually the day after the Record Date

Pre-emptive right

the right of common stockholders to maintain their proportional ownership if the company offers more shares of stock

subscription right

the securities used in additional offerings of stock to purchase available shares, usually at a slight discount

warrant

long term equity securities giving the owner the right to purchase stock at a set price. OFten attached as a "sweetener" that makes the other security more attractive

currency exchange risk

the risk that the value of the U.S. dollar versus another currency will have a negative impact on businesses and investors.

option

a derivative giving the holder the right to buy or sell something for a stated price up to expiration of the contract. Puts and calls

bullish

an investor who takes a position based on the belief that the market or a particular security will rise. Buyers of stock and call options

bearish

an investor who takes a position based on the belief that the market or a particular security will fall. sellers of stock and buyers of put options

preferred stock

a fixed-income security whose stated dividends must be paid before common stock can receive any dividend payment. Also gets preference ahead of common stock in a liquidation (but behind all bonds and general creditors)

fixed-income security

a security promising a fixed rate of interest or dividends.

straight preferred stock

a preferred stock whose missed dividends do not go into arrears, a.k.a. "non-cumulative preferred."

cumulative preferred stock

preferred stock where missed dividends go into arrears and must be paid before the issuer may pay dividends to other preferred stock and/or common stock

participating preferred stock

preferred stock whose dividend is often raised above the stated rate

convertible preferred stock

a preferred stock or corporate bond allowing the investor to use the par value to "buy" shares of the company's common stock at a set price

par value

the face amount that a debt security will pay at maturity, e.g., $1000. For preferred stock, the amount against which the dividend percentage is calculated, e.g., $100 par value

growth

investment objective that seeks "capital appreciation." Achieved through common stock, primarily.

income

investment objective that seeks current income, found by investing in fixed income, e.g., bonds, money market, preferred stock. An equity income fund buys stocks that pay dividends; less volatile than a growth and income or a pure growth fund.

capital appreciation

the rise in an asset's market price. The objective of a "growth stock investor."

yield

the income a security produces to the holder and capital gains distributions

total return

measuring growth in share price plus dividends and capital gains distributions

IPO

a corporation's first sale of stock to public investors, By definition, a primary market transaction in which the issuer receives the proceeds

Primary market

where securities are issued to raise capital for the issuer

secondary market

a "negotiated market" including NASDAQ and non- NASDAQ securities trading

registration statement

the legal document disclosing material information concerning an offering of a security and its issuer. Submitted to SEC under Securities Act of 1933

Securities Act of 1933

a.k.a., "Paper Act," regulates the new-issue or primary market, requiring non-exempt issuers to register securities and provide full disclosure

cooling off period

a minimum 20-day period that starts after the registration statement is filed. No sales or advertising allowed during this period, which lasts until the effective or release date.

indication of interest

an investor's expression of interest in purchasing a new issue of securities after reading the preliminary prospectus; not a commitment to buy

preliminary prospectus

a.k.., "red herring," a prospectus that lacks the "POP" and the effective date. Used to solicit indications of interest.

effective date

date established by SEC as to when the underwriters may sell new securities to investors, a.k.a. "release date."

public offering price

a.k.a., "POP,' the price an investor pays for a mutual fund or an initial public offering. For a mutual fund= NAV + the sales charge.

exempt security

a security not required to be registered under the Securities Act of 1933. Still subject to anti-fraud rules; not subject to registration requirements, e.g., municipal bonds and bank stock

exempt tansaction

a transactional exemption from registration requirements based on the manner in which the security is offered and sold, e.g., private placements under Reg D.

private placement

an exempt transaction under Reg D (Rule 506) of the Securities Act of 1933, allowing issuers to sell securities without registration to accredited investors, who agree to hold them fully paid 1 year before then selling them through Rule 144

purchaser representative

someone independent of the issuer in a private placement who can represent the needs of a non-accredited investor

best efforts

a type of understanding leaving the syndicate at no risk for unsold shares, and allowing them to keep the proceeds on the shares that were sold/subscribed to

firm commitments

an underwriting in which the underwriters agree to purchase all securities from an issuer, even the ones they failed to sell to investors. Involves acting in a "principal" capacity, unlike in "best efforts," "all or none," and "mini-max" offerings

spread

generally, the difference between a dealer's purchase price and selling price, both for new offering (underwriting spread) and secondary market quotes. For underwritings the spread is the difference between the proceeds to the issuer and the POP

standby offering

a firm commitment by an underwriter to purchase any shares that are not subscribed to in a rights offering

auction market

the NYSE, for example, where buyers and sellers simultaneously enter competitive prices, Sometimes called a "double auction" market because buying and selling occur at the same time, as opposed to Sotheby's, where only buyers are competing

first market

the exchange market, e.g., NYSE

specialist

an individual who oversees trading in a particular stock (GE, IBM, etc.,) in order to maintain a "fair and orderly market." The specialist buys and sells for his own account.

second market

Also known as the "negotiated market", or "OTC" market is not a physical marketplace, but its definitely a market; where market makers put out a bid and ask price, and stand ready to take either side of the trade for at least one round lot. For stocks a round lot is 100 shares.

bid

what a dealer is willing to pay to a customer who wants to sell

ask

the higher price in a quote representing what the customer would have to pay/what the dealer is asking the customer to pay. Customers buy at this price because dealers sell to customers at this price. Also called "offer/offered."

NASDAQ

National Association of Securities Dealers Automated Quotations system

Non-NASDAQ OTC

securities trading on the "over-the-counter" market that do not meet NASDAQ requirements. For example, pink sheets

third market

exchange-listed stock traded OTC primarily by institutional investors

fourth market

Where big institutional investors (pension funds, insurance companies, mutual funds, etc.) trade directly through electronic communications networks (ECNs)

bonds

debt securities which represent loans from investors to a corporation

partial surrender

life insurance policyholder cashes in part of the cash value. Excess over premiums is taxable

maturity date

the date that a bond pays out the principal and interest payments cease. Also called "redemption"

nominal yield

the interest rate, also known as the "coupon rate" which is named on the bond certificate

leverage

using borrowed money to increase returns. Debt securities and margin accounts are associated with this term.

current yield

the annual interest paid by a bond to an investor divided by what the investor would have to pay for the bond

discount bond

a bond trading below the par value

premium bond

a bond purchased fro more than the par value, usually due to a drop in interest rates

interest rate risk

the risk that interest rates will rise, pushing the market value of fixed-income security down. Long-term bonds are most susceptible

reinvestment risk

the risk that a fixed-income investor will not be able to reinvest interest payments or the par value at attractive interest rates. Happens when rates are falling

call risk

the risk that interest rates will drop, forcing investors to sell their bonds back early to the investor

investment grade

a bond rated at least BBB by S&P or Baa by Moody's. The bond does not have severe default risk, so it is said to be appropriate for investors, as opposed to the speculators who buy non-investment grade bonds.

high yield

an investment whose income stream is very high relative to its low market price. These types of bonds are either issued by a shaky company or municipal government forced to offer high nominal yields, or if they begin to trade at lower and lower prices on the secondary market as the credit quality or perceived credit strength of the issuer deteriorates

S&P

one of the top three credit rating agencies for corporate and municipal bonds as well as stock. The other two are Moody's, and Fitch

Moody's

one of the top three credit rating agencies for corporate and municipal bonds as well as stock. The other two are S&P, and Fitch

sinking fund

an escrow account earning safe little rates of interest, established by corporations and municipalities to help with bond rating, and to make sure the principal can actually be returned at maturity

secured bonds

corporate bonds that are backed up by specific assets, collateral

debenture

a bond backed simply by the full faith and credit of an issuer

subordinated debenture

debentures that have a claim on corporate assets that is below that of regular debentures when it comes to liquidating a company and paying out money to the bondholders. Since these bonds are riskier, they pay a higher coupon than debentures or secured bonds

claim on assets rank

1. Secured creditors

2. debentures/general creditors

3. subordinated debentures

4. preferred stock

5. common stock

convertible bonds

bonds that can be converted into a certain number of shares of the issuer's common stock. Par divided by conversion price = number of common shares

bond points

bonds are quoted in terms of either their price or their yield. If we're talking about a bond's price, we're talking about bond points. A bond point is worth $10, a bond selling for 98 bond points is worth $980

basis points

bonds are quoted in terms of either their price or their yield. If we're talking about a bond's price, we're talking about a bond's yield. If we're talking about a bond's yield, we're talking about basis points (yield to maturity to be exact)

T- bills

direct obligation of U.S. Government. Sold at discount, mature at face amount. Maximum maturity is 1 year.

T-notes

direct obligation of U.S. Government. Pay semiannual interest. Quoted as % of par value plus 32nds. Between 1 and 10 year maturities

T-bonds

direct obligation of U.S. Government. Pay semiannual interest. Quoted as % of par value plus 32nds. 10-30 year maturities

Treasury STRIPS

Separate Trading of Registered Interest and Principal of Securities. A zero-coupon bond issued by the U.S. Treasury in which all interest income is received at maturity in the form of a higher (accreted) principal value. Avoids "reinvestment risk"

series EE bonds

a non marketable, interest-bearing U.S. Government savings bond issued at a discount from the par value. Interest is exempt from state and local taxation.

Series HH bonds

a non marketable, interest-bearing U.S. Government savings bond issued at par and purchased only by trading in Series EE bonds at maturity. Interest is exempt from state and local taxation.

I-bond

a savings bond issued by the U.S. Treasury that protects investors from inflation or purchasing power risk

municipal bonds

a bond issued by a state, county, city, school district, etc., in order to build roads, schools, hospitals, etc., or simply to keep the government running long enough to hold another election

after-tax yield

the amount of interest income remaining after the investor pays taxes on it

tax-equivalent yield

the rate of return that a taxable bond must offer to equal the tax-exempt yield on a municipal bond. Tax equivalent yield= tax free municipal bond yield/ 1- tax rate

general obligation bonds

a municipal bond that is backed by the issuer's full faith and credit or full taxing authority

revenue bonds

a municipal bond whose interest and principal payments are backed by the revenues generated from the project being built by the proceeds of the bonds. Toll roads for example, are usually built with revenue bonds backed by the tolls collected.

user fees

also known as "user charges"

IDR

"Industrial Revenue Bond". A revenue bond that builds a facility that the issuing municipality then leases to a corporation. The lease payments from the corporation back the interest and principal payments on the bonds

bearer bonds

an unregistered bond that pays principal to the bearer at maturity. Bonds have not been issued this way for over two decades, but they still exist on the secondary market.

registered as to principal only

a bond with only the principal registered. Interest coupons must be presented for payment.

fully registered

also known as "book/journal entry"

book/journal entry

a security maintained as a computer record rather than a physical certificate. All U.S. Treasuries and many mutual funds are issued in this manner. Also known as "fully registered."

money market

the short-term (1 year or less) debt security market. Examples include commercial paper, banker's acceptance, T-bills.

TANs

Tax Anticipation Notes, short term loans issued by municipalities and backed up by tax revenues

commercial paper

a short-term unsecured loan to a corporation. Issued at a discount from the face value

negotiable CDs

large-denominated certificates of deposit that may be traded (negotiable) on a secondary market

bankers aceptance

(BA) money-market security that facilitates importing/exporting. Issued at a discount from face value. A secured loan.

mortgage-backed security

a fixed income security created with a pool of mortgages, e.g., GNMA

prepayment risk

the risk that mortgages underlying a mortgage-backed security/pass-through will be paid off sooner than expected due to a drop in interest rates. Investors reinvest the principal at a lower rate going forward.

GMNA

a government agency (not a public company) that buys insured mortgages from lenders, selling pass-through certificates to investors. Monthly payments to investors pay interest and return principal only at maturity, while "pass-throughs" pass through principal monthly. Thus the clever name "pass-through"

FNMA

buys mortgages from lenders and sells mortgage-backed securities to investors. A quasi-agency, a public company listed for trading on the NYSE

FHLMC

a quasi-agency, public company that purchases mortgages from lenders and sells mortgage-backed securities to investors. Stock is listed on NYSE

CMO

a collateralized mortgage operation, a very complicated "derivative" that gets its value from underlying mortgages or mortgage backed securities

tranche

a class of CMO. Principal is returned to one at a time in a CMO

REMIC

Real Estate Investment Conduit. A type of mortgage-backed security

GDP

measures total output of the American economy. It's the sum total value of all goods and services produced by the economy, measured as the price paid by the consumer

business cycle

a progression of expansions, peaks, contractions, troughs, and recoveries for the overall (macro) economy

inflation

"too many dollars chasing too few goods." Rising prices as measured by the consumer price index (CPI). Major risk to fixed-income investors (loss of purchasing power)

CPI

Consumer Price Index. A measure of inflation/deflation for basic consumer goods and services. A rising Consumer Price Index represents the greatest risk to most fixed-income investors

recession

two quarters (6 months) or more of economic decline. Associated with rising unemployment, falling interest rates, and falling gross domestic product

depression

six quarters (18 months) or longer of economic decline

deflation

a general drop in the level prices across the economy, usually connected to an economic slump

FOMC

the Federal Reserve Board's Federal Open Market Committee. Sets short-term interest rates by setting discount rate, reserve requirement and buying/selling T-bills to/from primary dealers

fiscal policy

means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy. It is the sister strategy to monetary policy through which a central bank influences a nation's money supply

monetary policy

what the FRB implements through the discount rate, reserve requirement, and FOMC open market operations. Monetary policy tightens or loosens credit in order to affect short-term interest rates and, therefore, the economy.

discount rate

interest rate charged by the 12 Federal Reserve Banks to member banks who borrow from the FRB

prime rate

interest rate charged to corporations with high credit ratings for unsecured loans

fed funds rate

interest rate charged on bank-to-bank loans. Subject to daily fluctuations

T-bills

these treasury securities are a short term obligation of the U.S. government that fall under the category of cash equivalents and are safe and liquid investments (less than one year)

Syndicate

group of brokerage house formed by the originating house to sell the security

Shelf Registration

A document submitted to the SEC when a security is to be issued after the country's initial offering.

Round Lot

A normal unit of trading, usually 100

Odd Lot

A unit of trading less than a hundred, ex: 23

Market Order

order to buy or sell at a current price

Limit Order

order to buy when the a stock reaches a current price

Day Order

A market order that expires at the end of the day

Good-Til-Cancelled order

Market order that lasts until it's cancelled

Stop Order

limit order to sell after a stock is purchased

Margin

Process by which a broker loans part of the required funds to the investor

Margin Requirement

The portion the investor is required to pay

Maintenance Margin

The minimum equity that an investor must have in an margin account

Street Name

leaving a security in the brokerage firm's name, rather than the investor's

Uptick Rule

The last change in a stock must be positive in order to do a short sale

IRA

tax deferred contributions

Roth IRA

contributions are already taxed, but never taxed again.

401(k)

employer sponsored tax-deferred account, often matched by the employer

Roth 401(k)

Contributions are already taxed as income but are never taxed again

SIMPLE IRA

Tax deferred, offered by some small companies

SEP IRA

For self-employed individuals, tax deductible, higher maximum contribution

Whole Life Insurance

payments are made for the rest of the policyholders life, and the beneficiaries receive a lump slum death benefit upon his/her death; portion of premium goes into an investment portion and can deducted or borrowed against according to the terms of the plan

Universal Life Insurance

Like whole life insurance, except premiums,investment amounts, and death benefit may be changed to suit the policyholder's need

Variable Life Insurance

Part of the premium is invested in the company's portfolio and may affect the death benefit

Variable Universal Life Insurance

monetary amounts can be adjusted and policyholders can choose what to invest in; classified as securities, regulated by SEC

Term Life Insurance

Covers in case of death for a set of period of time, does not build cash value

Unit Investment Trust

Act like mutual funds but only contain bonds

Pig market

An investor who is often seen as greedy, having forgotten his or her original investment strategy to focus on securing unrealistic future gains.

Indenture

A legal document specifying the terms of an issued bonds

Trustee

an appointee, often a commercial bank, responsible for upholding the terms of the bonds

Principal

The amount owned; the face of value of the debt

Bearer Bonds

The person who owns the bonds is the owner; not registered in the owner's name, also called coupon bonds because there are coupons that must be detached and turned in for payment; no longer issued

Flat

A bond not currently paying interest

Call Feature

The ability to retire a bond before the maturity date

Equipment Trust Certifcates

secured by assets with certain resale prospects, such as airplanes

Variable Interest Rate Bonds

The interest rate may change, often tied to a Treasury rate

Zero Coupon Bond

sold at price lower than face value, but all interest is paid at maturity

Eurobonds

A bond issued abroad using US dollars

Split Coupon Bonds

Little or no interest is paid for the first part of the term, followed by a higher rate

Reset Bond

The Interest rates changes periodicaly

Increasing Rate Bond

The interest rate may increase

Extendable Security

The maturity date may be postponed

Serial Bonds

A portion of the bonds mature each year

Federal Agency Bonds

issued by government created corporations, not the federal government itself

Ginnie Mae Bonds

Issued by GNMA, the debt is used to provide mortgages; holders are paid monthly and payments may vary depending on payments made by people who have taken out the mortgages; Fannie Mae and Freddy Mac work the same way

Intrinsic Value

What an option is worth as a stock; the difference between the price of the stock and the call's share price

Arbitrage

Simultaneous buying and selling of a commodity in markets to make a profit

LIBOR

London Inter bank offer rate, the interest rate offered by London banks on deposits made by other banks within the Eurozone

Blue Sky Laws

State laws that prevent securities fraud

Speculative Loss

The outcomes are loss, gain, or break even, Ex: gambling, investing in stock, starting a business, not insurable

Fundamental Risk

a non discriminate risk that occurs from a natural cause, rather than a specific party, Ex: War, Weather, political or economic insatiability

Particular Risk

Affects only a certain individual, Ex: your motorcycle is stolen

Static Risk

losses that occur by a person's misdoing, rather than a change in the economy

Dynamic Risk

brought about by widespread change in the economy.

AUM

Assets under management

NAV

Net asset value

Net Asset value

NAV

Assets under management

AUM

Open-ended mutual fund

Open-end mutual fund shares are bought and sold on demand at their net asset value

Close-ended mutual fund

have a fixed number of shares and are traded among investors on an exchange.

Will

lets

you direct how your assets should be

administered, to whom—and under what

circumstances—your assets should be

distributed, and who should manage your

assets after your death.

Trust

legal arrangement through which assets

are held for a beneficiary. A trustee is

designated to manage the assets according

to the terms in the trust documents. You

can provide direction about how the trustee

should manage the assets, and under what

terms the trustee should distribute them.

Grantor

The person creating the trust

(also called settlor, creator, or trustor).

Beneficiary

One entitled to receive

part or all of the property under the

terms of the trust, either now or in the

future. A beneficiary can be an individual

or an entity.

Trustee

The person or company that

holds the legal title to the assets in the

trust and is generally responsible for

managing and distributing the assets in

accordance with the terms of the trust.

Revocable Living Trust

are created

during the grantor's lifetime and

can generally be changed or revoked

at any time while the grantor is still

living. When the grantor dies, however,

the trust becomes irrevocable. The

grantor often serves as trustee during

his or her lifetime.

Irrevocable Trusts

are created during

the grantor's lifetime or upon his or her

death under the terms of a will or another

trust. Typically, these types of trusts

can't be changed or revoked. For the

most part, irrevocable trusts are created

for the benefit of individuals or charitable

organizations

Intestate

If you were to die without a will or Trust in your name

Probate

Establishing the validity of the Will

Treasury Inflation-Protected

Securities

TRIPS

Amortization

Liquidation of a debt by

making periodic payments over a set

period, at the end of which the balance

is zero.

Securities Exchange Act of 1934

created the SEC, forbids market manipulation and fraudulent practices; public corporations must keep current information on file with the SEC

Sarbanes-Oxley act of 2002

Created Public company accounting oversight board; addressed conflicts of interest, corporate responsibility and fraud, and public disclosure

Investment Advisers act of 1940

regulate people compensated for providing advice, about securities; must register with SEC and disclose backgrounds, compensation, etc

Securities Investor protection Corporation

agency that insures investors against brokerage firm failures, created by Securites Investors Protection act in 1970; equivalent of FDIC; protects up to $500,000,including 250,000 in cash

SEC regulation FD

prohibits firms from divulging information to one group before another

Certificate of Deposit (CD)

An interest-earning deposit that requires the funds to remain deposited for a fixed term. Withdrawal of the funds before the term expires results in a financial penalty.

Individual Savings Account

A tax free savings and investments account

defined benefit plan

pension plan that guarantees a specified level of retirement income

defined contribution plan

A pension plan that establishes the basis on which an employer will contribute to the pension fund

403b

similar to a 401k, but only employees of certain nonprofit organizations can participate

457b

Employee pre-tax dollars diverted into investment account for governmental employees

tax deduction

A donation or expense that reduces the taxable income amount.

tax credit

An amount subtracted directly from the tax owed

alternative minimum tax

personal income tax rate that applies to cases where taxes would otherwise fall below a certain level of $47,450

Tracker Mortgage

A variable-rate mortgage, under which the cost of borrowing follows the Bank/Base Rate. (eg 1 per cent above Base Rate). If Bank Rate changes, then the tracker rate on the mortgage changes automatically by the same amount and in the same direction

Discount mortgage

A variable-rate mortgage that gives the customer a set discount off the provider's standard variable rate (SVR) for an agreed period. The rate charged can still rise or fall.

Collar

A rate the mortgage interest can't fall behind

standard variable rate

A provider's basic mortgage rate, which the provider can decide to change at any time - often such changes follow a change in the Bank of England's Bank rate. See also variable-rate mortgage.

annuity

A contract between you and the insurance company that requires the insurer to make payment to you, either immediately or in the future

Fixed annuity

The insurance company promises you a minimum rate of interest and fixed amount of periodic payments

Variable Annuity

Annuity that has a varying rate of return based on the mutual funds in which one has invested

Indexed Annuity

Combines an insurance product and securities product. The insurance company credits you with the return on based on a stock market index usually the S&P 500.

ECN

A electronic trading system that matches buy and sell orders at specific prices.

market makers

securities dealers that make a commitment to continuously offer to buy and sell the stock of a specific corporation listed on the NASDAQ exchange or traded in the OTC market

Payment of Order Flow

-SEC requires orders to be touted to the best available price posted

-By allowing firms to pay for order flow, competition will increase which will greatly benefit customers to always receive the best available price

hedge fund

A private investment organization that employs risky strategies that often made huge profits for investors. Charge a 2% on assets and 20% on all profits.

Growth Stocks

stocks that tend to have higher price-earnings ratios and are expected to have higher future earnings

Income stocks

stocks that have a consistent history of paying high dividends

value stocks

stocks that tend to have lower price-earnings ratios and are priced low in relation to current earnings

Blue Chip Stocks

stocks of large, well-established corporations with a solid record of profitability

Large Cap stocks

firms that issue more than $10 billion of stocks

mid cap stocks

firms that issue more than $2 billion to $10 billion of stocks

small cap stocks

Stocks that generally have market values of less than $1 billion but can offer above-average returns.

cyclical stock

a stock that tends to rise and fall with the economy

international stocks

stocks of companies based entirely outside the US or throughout the world

dollar cost averaging

a long-term technique used by investors who purchase an equal dollar amount of the same stock at equal intervals

Form 10-K Annual Report

Due within 90 days of the fiscal year-end. Contains audited financial statements and a discussion on Company's business report

10-Q (quarterly report)

Public Companies must file this report to the public for each of the first three quarters of the fiscal year. Report includes unaudited financial results and discusses business results

Form 8-K Current Report

due within 15 days of the major event date. Financial statements can be unaudited. Major events may include change in leadership or bankruptcy

Proxy statements

issued to shareholders when there are matters that require a shareholder vote

Additional Disclosures

Other events that require releases to the public. Examples: Merger talks, acquisitions, Transcations by insiders

Money Market Funds (MMFs)

accounts that pool money from individuals and invest in securities that have a short-term maturity, such as one year or less

Bond Funds

Specialize in fixed-income (bonds) sector

Target Date Funds

attempt to maintain a desirable balance of risk and growth potential based on a target retirement date

Credit Risk

the probability that the borrower will fail to pay some of the interest or principal

Interest Rate Risk

interest rates rise and fall may affect the bond's value. Rising interest rate bonds will cause newer bonds to be more attractive than older bonds as newer issues have higher yields.

Inflation Risk

Reduces purchasing power which mostly affects fixed income investors

Liquidity risk

The probability you won't be able to find a market for the security you are attempting to unload

Call Risk

the risk to bondholders that a bond may be called away from them before maturity

Series EE bonds

An appreciation type of savings security sold at face value. Interest is issued to you electronically. Cannot buy more than $10,000

Series I US savings bonds

Savings bond indexed to inflation. Offers a fixed rate of interest that is adjusted for inflation

General Obligation Bonds

Bonds issued by states, cities, or counties not secured by assets. Instead they are backed by full faith and credit which has the power to tax to pay bondholders

Revenue bonds

Not backed by goverment's tax powering but rather revenues from a spefic project or source. Ex: Highway tolls

Futures

contracts to buy or sell at a specific date in the future at a price specified today

Options

contracts that give investors the choice to buy or sell stock and other financial assets at fixed price, on or before a specified future date

Assignment

When a buyer excerises their rights under an option contract, the seller recieves a notice that they must fufill their obligation to buy or sell.

Holder

The buyer of an option contract

Writter

The seller of an option contract

credit swap

Derivative contract in which two parties exchange cash flows or liabilities from two different financial instruments

Interest Rate swaps

Parties exchange cash flows based on a notional principal amount in order to hedge or speculate on interest rate risk

Commodity Swaps

swaps involving the exchange of a floating commodity price.

Currency Swap

parties exchange interest on principal payments on debt denominated in diffrent curriencies. Unlike any interest rate swap, principal is exchanged with interest obligations

debt-equity swap

A transaction in which the obligations (debts) of a company or individual are exchanged for something of value (equity). In the case of a publicly-traded company, this would generally entail an exchange of bonds for stock. The value of the stocks and bonds being exchanged are typically determined by the market at the time of the swap.

Total Return Swap

A swap in which one party agrees to pay the total return on a security. Often used as a credit derivative, in which the underlying is a bond.

Credit Default Swap

an insurance policy on the default risk of a corporate bond or loan

derivative

Contract between two or more parties whose value is based on an underlying financial asset (like security) or set of assets.

Financial Services and markets act

The Financial Services and Markets Act 2000 (c 8) is an Act of the Parliament of the United Kingdom that created the Financial Services Authority (FSA) as a regulator for insurance, investment business and banking, and the Financial Ombudsman Service to resolve disputes as a free alternative to the courts.

insider trading

an unethical activity in which insiders use private company information to further their own fortunes or those of their family and friends

Data Protection Act

UK law that governs the collection and use of personal data.

FINRA (Financial Industry Regulatory Authority)

a not-for-profit entity that regulates securities firms for the purpose of protecting investors. Licensed individuals and firms, such as brokerage houses, must adhere to FINRA guidelines

SEC

Enforces law concerning stocks and bonds along with overseeing advisors.

FASB (Financial Accounting Standards Board)

the private board that establishes the generally accepted accounting principles used in the practice of financial accounting

Dodd-Frank Act

a law enacted in the aftermath of the financial crisis of 2008-2009 that strengthened government oversight of financial markets and placed limitations on risky financial strategies such as heavy reliance on leverage

National Banking Act of 1863

created a new system of federally chartered banks called National Banks

Federal Reserve Act

a 1913 law that set up a system of federal banks and gave government the power to control the money supply

Glass-Steagall Act

(Banking Act of 1933) - Established the Federal Deposit Insurance Corporation and included banking reforms, some designed to control speculation. Repealed in 1999, opening the door to scandals involving banks and stock investment companies.

Depository Institutions Deregulation

which served to deregulate financial institutions that accept deposits while strengthening the Federal Reserve's control over monetary policy.

Commission

An amount paid to a broker based on a percentage of the brokers transacations

Fee

A flat rate for managing money

churning

The illegal and unethical practice engaged by a broker to increase commissions by causing excessive trading of clients' accounts is called

cash value

the amount of money a whole life policyholder would receive if the policy were surrendered before death or maturity

Premium

payments are set using actuarially based statistics. The insurer will determine the cost of insurance (COI), or the amount required to cover mortality costs, administrative fees, and other policy maintenance fees. Other factors that influence the premium are the insured's age, medical history, occupational hazards, and personal risk propensity. The insurer will remain obligated to pay the death benefit if premiums are submitted as required.

Depreciation Expense

the portion of a plant asset's cost that is transferred to an expense account in each fiscal period during a plant asset's useful life

Amortization

the reduction of a loan balance through payments made over a period of time

Triple-Tax Exempt

Bonds that are exempt from federal, state and local taxation.

government securities

IOUs that the government issues when it borrows money

Lien

a right to keep possession of property belonging to another person until a debt owed by that person is discharged.

Closing costs

fees involved in arranging for a mortgage or in transferring ownership of property

Title fees

These are the fees that relate to making sure that the seller of the property can transfer the title (deed) of the property to you without also giving you any liens or issues also attached to the property. It also protects the lender from issues too. These fees include the title search fee and title insurance fees. Title fees also include the cost to record and register your ownership at the courthouse after closing, as well as the use of a notary that witnesses your official signatures on your closing documents

escrow fees

Property tax pro-rations and homeowner's insurance premiums will be included in your closing costs to make sure there are no gaps in coverage between when the seller stops paying and you start. Because you are paying them before your regular mortgage payment kicks in, they are often called "pre-paids." This may also include pre-paid interest to cover the gap between when you close and when you make your first mortgage payment. If you plan on including your property taxes and homeowner's insurance in your monthly mortgage payment (also called your escrow account), allowing your lender to pay these bills on your behalf in the future, you will need to make an initial deposit of funds for any bills that need to be paid soon after closing.

Mortgage Insurance

If your loan type requires some type of funding or guarantee fee (most common with government-insured loans), you may have to pay the total amount upfront. Loans with a small down payment involve substantially more risk for the lender so mortgage insurance provides the lender protection in case you go into foreclosure

Loan-related fees

These fees include any origination charges, application fee, processing fee, credit report fee, and any discount points you want to pay for to get a lower interest rate.

Property-Related fees

During the loan process, your property will be appraised to determine its value. It may also be inspected for pests and for any other structural, electrical, or plumbing issues. The cost of these items may show up as closing costs if you haven't already paid for them prior to closing

tax shelter

A tax shelter is a vehicle used by taxpayers to minimize or decrease their taxable incomes and, therefore, tax liabilities.

Cash account

a brokerage account in which all transactions are made on a strictly cash basis and must pay for all securities in cash

margin account

type of brokerage account in which your brokerage firm can lend you money to buy securities, with the securities in your portfolio serving as collateral for the loan. As with any other loan, you will incur interest costs when you buy securities on margin.

Estate tax

rate applied to the fair market value of a property at the time of death

408(k) Plan

Qualified plans for small employers. A mix of an IRA and profit-sharing plan. More commonly referred to as a SEP.

conduit borrower

typically agree to repay the issuer, who pays the interest and principal on the bonds. In cases where the conduit borrower fails to make a payment, the issuer usually is not required to pay the bondholders.

Broker-Dealers

charge a fee to handle trades between the buyers and sellers of securities. A broker-dealer may buy securities from their customer who is selling or sell from their own inventory to its customer who is buying.

Credit agencies

provide opinions on the creditworthiness of a company or security. They indicate the credit quality by means of a grade. Generally, credit ratings distinguish between investment grade and non-investment grade. For example, a credit rating agency may assign a "triple A" credit rating as its top "investment grade" rating, and a "double B" credit rating or below for "non-investment grade" or "high-yield" corporate bonds. Credit rating agencies registered as such with the SEC are known as "Nationally Recognized Statistical Rating Organizations."

ATS

Alternative Trading Systems. This term encompasses all systems that perform securities exchange functions and are not registered with the Commission as exchanges.

Pure Risk

A situation in which there are only the possibilities of loss or no loss

Personal Risk

anything that exposes you to the risk of losing something of value. Usually, personal risk is associated with your financial investments and insurance.

Auction Rate Securities

debt or preferred equity securities that have interest rates that are periodically re-set through auctions, typically every 7, 14, 28, or 35 days. ARS are generally structured as bonds with long-term maturities (20 to 30 years) or preferred shares (issued by closed-end funds). Municipalities and public authorities, student loan providers and other institutional borrowers first began using ARS to raise funds in the 1980s.

Full Service brokers

Provide a wide range of services in addition to carrying out trades

discount brokers

These firms have significantly lower costs than full-service brokerage firms. However, like the name suggests, a discount brokerage firm offers fewer services in exchange for lower fees.

Prerefunded bonds

Original bonds are escrowed or collateralized with U.S. Treasury obligations, effectively guaranteeing the issue. The safest muni's available.

Brokers

financial professionals that buy and sell securities on behalf of the customers.

Dealers

buy and sell securities for their own accounts.

simple interest

interest paid on the principal alone

compound interest

interest earned on both the principal amount and any interest already earned

Wash Sale

Selling a security at a loss for tax purposes and, within 30 days before or after, purchasing the same or a substantially identical security. The IRS disallows the claimed loss.

capital gains tax

a tax levied on the returns that people earn from assets, like the profits from the sale of stocks or a home

long-term capital gain

A gain on a capital asset that has been held for more than one year, resulting in a more favorable capital gains tax rate.

short-term capital gain

"the capital gain on the sale of a capital asset that was held for a relatively short period of time, usually one year or less."

Tax Loss Carryforward

Loss that could not be deducted on the tax return in current period but may be used to reduce taxable income and taxes payable in future (i.e. warranty)

Tax Loss Harvesting

realizing losses to offset realized gains or other taxable income

Net Investment Income Tax

Tax of 3.8% on interest, dividends, capital gains, rental and royalty income, and non-qualified annuities on the lesser of net investment income, or the amount by which their MAGI exceeds $250,000 MFJ, QW / $200,000 / $125,000

Exchange Traded Funds

offer investors a way to pool their money in a fund that makes investments in stocks, bonds, or other assets and, in return, to receive an interest in that investment pool. Unlike mutual funds, however, ETF shares are traded on a national stock exchange and at market prices that may or may not be the same as the net asset value ("NAV") of the shares, that is, the value of the ETF's assets minus its liabilities divided by the number of shares outstanding.

authorized participants

typically are large broker-dealers. Only Authorized Participants are permitted to purchase and redeem shares directly from the ETF, and they can do so only in large aggregations or blocks (e.g., 50,000 ETF shares) commonly called "Creation Units."

Index-based funds

Most ETFs trading in the marketplace are index-based ETFs. These ETFs seek to track a securities index like the S&P 500 stock index and generally invest primarily in the component securities of the index. For example, the SPDR, or "spider" ETF, which seeks to track the S&P 500 stock index, invests in most or all of the equity securities contained in the S&P 500 stock index.

Actively Managed ETFs

ETFs are not based on an index. Instead, they seek to achieve a stated investment objective by investing in a portfolio of stocks, bonds, and other assets. Unlike with an index-based ETF, an adviser of an actively managed ETF may actively buy or sell components in the portfolio on a daily basis without regard to conformity with an index.

High yield corporate bonds

a type of corporate bond that offers a higher rate of interest because of its higher risk of default. When companies with a greater estimated default risk issue bonds, they may be unable to obtain an investment-grade bond credit rating. As a result, they typically issue bonds with higher interest rates in order to entice investors and compensate them for this higher risk.

Economic risk

If the economy falters, some investors are likely to try to sell their bonds. In what is known as a "flight to quality," a number of investors may decide to replace their riskier high-yield bonds with safer ones, such as U.S. Treasury bonds. If there are more sellers than buyers for high-yield bonds, the supply will exceed demand and prices of the bonds will fall.

Mortality and expense risk charge

Morality risk; guarantee that expenses will not exceed a certain percentage of assets; allowance for profit

American Depositary Receipts

The stocks of most non-U.S. companies that trade in the U.S. markets are traded as American Depositary Receipts (ADRs). Each ADR represents one or more shares of foreign stock or a fraction of a share. If investors own an ADR they have the right to obtain the stock it represents, but U.S. investors usually find it more convenient to own the ADR.

Prime Funds

money market funds that primarily invest in a variety of taxable short-term corporate and bank debt securities are generally referred to as

Electronic Municipal Market Access

EMMA; dataport where municipal bond underwriters and issuers submit official statements and continuing disclosures

Private Equity Funds

investment companies that raise funds from wealthy individuals and institutional investors and use those funds to make large investments in both public and privately held companies

Accredited Investor

an organization or individual investor who meets certain criteria established by the SEC and so qualifies to invest in unregistered securities

REITs (Real Estate Investment Trusts)

Joint ventures, usually in the form of a limited partnership, through which real estate is purchased. A person must have a securities license to sell REITS. REITs avoid double taxation as they are taxed to the beneficiary.

Smart Beta

The strategy of implementing a rules-based portfolio weighting scheme based on one or more characteristics in the underlying assets that generates portfolio weights that differ from a market-capitalization weighting scheme.

Quant Funds

The custom-built indexes for these funds use numerical methods like quantitative analysis or algorithms to select the fund's investments.

Simple Interest Formula

I=prt

non-investment grade

-high yield bonds or junk bonds

-Ba1 or BB+ are the highest

-Bonds in default are rated D or C, depending on rating system

-When a company defaults, a provision may make the default on remaining bonds as well (called a cross default provision)

non-recourse revenue bonds

If the revenue stream dries up bond holders do not have a claim on the revenue source

yield to maturity

the rate of return a bondholder will receive if the bond is held to maturity

prospectus

document issued to possible buyers of a stocks and bonds outlining the financial condition of the company issuing those securities

Accumulation Period

- period of time insured must incur eligible medical expenses at least equal to the deductible amount in order to establish a benefit period under a major medical expense or comprehensive medical expense policy.

Actuary

An officer, as of an insurance company, who calculates and states the risks and premiums.

Annuitant

the beneficiary of an annuity payment, or person during whose life and annuity is payable.

Blanket coverage

coverage for property and liability that extends to more than one location, class of property or employee.

Business Interruption

Any event, whether anticipated (i.e., public service strike) or unanticipated (i.e., blackout) which disrupts the normal course of business operations at an organization location.

Casualty Insurance

Insurance that provides monetary benefits to a business that has experienced an unforeseen peril such as flood, fire, etc.

Claim

- a request made by the insured for insurer remittance of payment due to loss incurred and covered under the policy agreement.

Copay

an out-of-pocket fee paid by a person with health insurance at the time a covered service, such as an office visit or a prescription, is received

Deductible

Amount you must pay before you begin receiving any benefits from your insurance company

Deferred Annuity

annuity payment to be made as a single payment or a series of installments to begin at some future date, such as in a specified number of years or at a specified age.

Encumbrance

outstanding mortgages or other debt related to real estate and any unpaid accrued acquisition or construction costs.

Endorsement

an amendment or rider to a policy adjusting the coverages and taking precedence over the general contract.

FEMA

independent agency, tasked with responding to, planning for, mitigating and recovery efforts of natural disasters.

Gramm-Leach Bliley Act (GLBA

repealing Glass-Steagal Act of 1933, allows consolidation of commercial banks, investment institutions and insurance companies. Established a framework of responsibilities of federal and state regulators for these financial industries. It permits financial services companies to merge and engage in a variety of new business activities, including insurance, while attempting to address the regulatory issues raised by such combinations.

Group Annuity

a contract providing income for a specified period of time, or duration of life for a person or persons established to benefit a group of employees.

Homeowners Insurance

Provides payment to cover liability losses as well as damage and loss of the home structure and its contents

Incurred Claims

paid claims plus amounts held in reserve for those that have been incurred but not yet paid.

Irrevocable Beneficiary

one that cannot be changed without the beneficiary's consent

Lapse

termination of a policy due to failure to pay the required renewal premium

Municipal obligation bond

any security, or other instrument, including a state lease but not a lease of any other governmental entity, under which a payment obligation is created, issued by or on behalf of a governmental unit to finance a project servicing a substantial public purpose,

Mutual Insurance Company

A type of insurance company owned by its policyholders.

Named Insured

the individual defined as the insured in the policy contract. .

Negligence

failure to exercise reasonable consideration resulting in loss or damage to oneself or others.

Underwriter

A person who evaluates and classifies risks to accept or reject them on behalf of the insurer.

Umbrella and Excess (Personal)

non-business liability protection for individuals above a specific amount set forth in a basic policy issued by the primary insurer; or a self-insurer for losses over a stated amount; or an insured or self-insurer for known or unknown gaps in basic coverages or self-insured retentions.

Treaty

a reinsurance agreement between the ceding company and reinsurer.

Travel Coverage

covers financial loss due to trip cancellation/interruption; lost or damaged baggage; trip or baggage delays; missed connections and/or changes in itinerary; and casualty losses due to rental vehicle damage.

Self-Insurance

type of insurance often used for high frequency low severity risks where risk is not transferred to an insurance company but retained and accounted for internally.

Retention

a mechanism of internal fund allocation for loss exposure used in place of or as a supplement to risk transfer to an insurance company.

Rebate

a refund of part or all of a premium payment.

Reserve

A portion of the premium retained to pay future claims

Provisions

contingencies outlined in an insurance policy.

Preferred Risk

insured, or applicant for insurance, who presents likelihood of risk lower than that of the standard applicant.

Premium

Money charged for the insurance coverage reflecting expectation of loss.

Peril

the cause of property damage or personal injury, origin of desire for insurance. "Cause of Loss"

proxy

The delegation of voting rights from one person to another

3 years

How long should you hold onto previous tax returns?

7 years

How long should you onto tax returns if you claimed a bad security or debt for a loss?

Secured personal loan

protected by an asset. The item purchased, such as a home or a car, can be used as collateral. Ex: Mortgage and Auto Loans

Unsecured personal loan

a loan that is issued and supported only by the borrower's creditworthiness, rather than by any type of collateral

Reverse Mortgage

An arrangement where the lender agrees to pay money to an elderly homeowner, either regularly or occasionally, and to be repaid from the homeowner's equity when he or she sells the home or obtains other financing.

Ballon Mortgage

A mortgage with a very large last payment, with all other payments being relatively low

Jumbo CD

is a CD for a large amount of money usually $100,000 or more