A
Ask
The price at which the one who owns a security offers to sell it. Also known as the asking or asked price.
Assets
Any possession that has a value in an exchange.
Asset Allocation Funds
Mutual funds composed of stocks, bonds, and cash equivalents that meet specific individual investment requests.
Average Daily Share Volume
The number of shares traded on one day, averaged over a period of time—usually one year.
Average Maturity
The average time of securities to maturity in a mutual fund.
B
Best Ask
The best price at which someone who owns a security offers to sell it; also known as the asked price.
Best Bid
The best price, at a given point in time, at which a buyer is prepared to pay for one unit of a security.
Beta
A measurement of volatility relative to the overall market. The beta of the market is defined as 1.0. Thus, a fund with a beta of 1.3 for example, tends to perform better than the market by 30% (when the market is rising), and perform worse than the market by 30% (when the market is declining). Funds with higher betas are considered riskier.
Bid
The price that a buyer is prepared to pay at a particular time for trading one unit of a given security.
Blue Chip
A common stock of an established company that has a long record of stable growth.
Bond
A long-term government or corporate debt security with maturity of at least 10 years, starting from the date it was issued. Interest is usually paid twice yearly, and the face value is repaid at the maturity date. The debt securities are sold in denominations of $1,000, with a minimum value of $1,000.
C
Call Option
Offers the right to buy or sell (100) shares of an underlying asset at a fixed price, up to a specified expiration date. Buyers of call options will profit only if the price of the underlying asset rises above the fixed price (known as the strike price), and sellers of call options will profit if the price remains unchanged or goes down.
Capital Gain
Results when an investment (stocks, funds, bonds) is sold at a higher price than the price at which it was bought. It is the growth of the earnings on an investment's principals.
Capital Gains Distribution
Distribution of profits to mutual fund shareholders from the sale of securities in a fund's portfolio. If distributions take place, they are usually made once a year.
Closed-end Mutual Funds
A mutual fund issuing a fixed number of shares, which can then be resold on secondary market exchanges like regular stock shares.
Common Stock
Securities that represent a partial ownership of a corporation.
Compounding
A means of calculating paid interest by adding the principal to the previously earned interest.
Corporate Bond
Debt securities issued by corporations as an alternative to offering equity ownership by issuing stock. Most corporate bonds pay interest twice a year and pledge to return the principal at the maturity date. Maturities are up to 30 years.
D
Debt to Equity Ratio
A figure of long-term debt divided by shareholders' equity, which shows the relationship between long-term loans provided by creditors and funds provided by shareholders. A high ratio could imply high risk, and a low ratio indicates low risk.
Diversification
The dispersion of assets among various types of investments.
Dividend
The distribution of earnings to shareholders, where payments are made according to the class of the security. The payment, usually paid quarterly, is usually in the form of money, stock, or scrip—the amount of which is decided by the Board of Directors. In the case of mutual fund, the dividents are paid out of income.
Dividend Amount
The value of the last cash dividend, or the number of shares received for each share that is owned in a stock dividend.
E
Earnings Per Share (EPS)
Is the amount of company earnings (or profit) that is allocated for each outstanding share of common stock. It is calculated by dividing net income for a specific amount of time, by the total number of shares outstanding in that same period.
Ex-dividend
The time interval between the day a company announces the next dividend date, and the payment of that next dividend.
Ex-dividend Date
The date on or after which a security trades without the dividend amount included in the contract price.
F
Face Value
The value displayed on a bond that is also known as the principal or par value.
Fixed Income Securities
Debt securities or IOUs for borrowed money. The securities are paid interest throughout the term of the loan, and the face value is returned at maturity. The U.S. government issues such securities, as well as institutions such as banks, publicly held companies, and savings and loans institutions.
I
IPO
The initial public offering of a security.
IPO Date
The date at which a security started publicly trading.
L
Limit Order
An order to buy or sell a stock at a specified price by the investor.
Liquid Investment
An investment that can be easily converted into cash.
M
Market Capitalization (MCAP)
The price per share multiplied by the total number of shares outstanding. It is sometimes also known as the market's total valuation of a publicly traded company.
Market Order
An order that is executed as quickly as possible at the best price available on the market at that specific time. An order placed when the market is open will most likely be executed at or close to the current quotation (for widely traded securities). An order to buy will be executed at or close to the ask price, and an order to sell will be executed at or close to the bid price. If the order is placed when the market is closed, the order will usually be executed at or close to the opening price of the next trading day.
Market Value
The price at which a stock is currently traded on the market.
Maturity Date
The date on which the principal amount of a bond is to be paid in full.
Mutual Fund
An investment by a company that pools shareholders' money, and invests in a variety of securities such as stocks and bonds and other financial instruments.
N
Net Asset Value (NAV)
The market value of a share, also known as the bid price. It is calculated by most funds every day after the close of the exchanges. The calculation is done by adding the closing market value of all securities in the fund, plus all other assets such as cash, then subtracting all liabilities, which will give you the total net assets. This figure is then divided by the total number of shares outstanding.
O
Offer Price
The price at which the shares were originally offered to the public.
Open-end Fund
A mutual fund that does not limit the number of shares that can be issued. The shares are purchased directly from the fund company, or through a brokerage firm. The fund usually allows investors to sell their shares back to the company at their current net asset value, (a value that depends on the total market value of the fund's investment portfolio at the time of redemption.)
Option
A contract that permits (does not oblige) the owner to buy or sell a security at a specific price (known as a strike price), up until a specified expiration date. A "call" is an option to purchase a security, whereas a "put" is an option to sell a security.The price paid for the option is the "premium."
P
Preferred Stocks
A class of stock that has priority on the company's earnings, if bankruptcy is declared and the company offers bankruptcy dividends. The preferred stockholder will be paid before any payment is made to the common stock holders.
P/E Ratio (Price/Earnings Ratio)
A stock analysis statistic calculated by taking the current price of a stock and dividing it by the reported actual (or forecasted) earnings per share of the company. It is also known sometimes as the "multiple".
Principal
The amount of money that is borrowed, invested, or financed.
Put Option
Offers the buyer the right to sell a specified number of shares of stock at a specified price, up until the option's expiration date. A buyer of a put option will make profits if the price of the stock falls. Such an option may also be purchased to protect investments in case the price of the stock drops.
R
Retained Earnings
Net profits accumulated in a firm after dividends have been paid.
Return on Equity
A company's net income divided by shareholders' equity.
Return on Total Assets
A company's net income divided by total net assets. It is a measure of the net income that a firm is able to earn using the firm's total assets.
S
Sell Short
Selling a stock that you do not own. Short sellers assume the risk that they will be able to buy the stock at a cheaper price than the price at which they sold short. This type of selling is usually only done in a margin account. If the brokerage firm owns the stock, the short seller may borrow the stock so as to sell it, and buy it back in the market at a later date. However, the firm has the right to call the security back at any time. Short sales require the equity (or a certain amount of money) to be deposited in a margin account so as to assure that the stock can be repurchased even if the price goes up.
Stock Dividend
The payment of a corporate dividend given in the form of stock rather than cash. Distribution may be either in the form of additional company shares, or the distribution of shares of the company's subsidiary given to shareholders. Stock dividends, unlike cash dividends, are usually not taxed until they are sold.
Stop Order
An order that becomes a market order once the security has traded through the designated stop price. Buy stops are entered above the current ask price. If the price moves to or above the stop price, the order becomes a market order and will be executed at the current market price. This price may be higher or lower than the stop price. Sell stops are entered below the current market price. If the price moves to or below the stop price, the order becomes a market order and will be executed at the current market price.
Switch/Swap
A type of order used only for mutual funds that allows to move money from one mutual fund to another. If the order is placed over the phone, it is referred as a swap or an exchange. The details of the execution of the order depends on such variables as the time of the day at which it was entered, and which specific fund involved.
U
Underwriter
Investment banking firms that are responsible for bringing the company public.
V
Volatility
A statistical measurement of the price fluctuation of a stock, rate, or asset, usually expressed as a variance or standard deviation.
W
Warrant
A certificate issued by a company, usually issued in addition to a bond or preferred stock, giving the holder the right to purchase securities at a specific price within a specific time limit or to perpetuity. Companies sometimes offer them as a means of motivating investors to buy common stock or other securities. Warrants are transferable and traded on major exchanges.
Y
Yield
The rate of return on a capital investment. For bonds, it is the coupon rate of interest divided by the purchase price. Also known as the current yield.
Z
Zero Coupon Bond
Securities that pay no interest during their term, yet are sold at a discount from their face value. A zero coupon bond usually increases in value as it approaches the maturity date, and the appreciation of the bond is the sole source of return. The difference in value between the price at which it was purchased and the price at which it is at maturity, represents the yield or accretion value. Zero-coupon bonds have maturities ranging from one to 30 years.
© 2000 Mena Report (www.menareport.com)
