Glossary
A
ACCRUAL ACCOUNTING:
A method of reporting income when earned and expenses when incurred, as opposed to reporting income when received and expenses paid.
ACCRUED INTEREST:
The accumulated coupon interest, paid to the seller of a bond by the buyer. (Unless the bond is in default.)
ACID-TEST RATIO:
Also called the quick ratio, the ratio of current assets minus inventories, accruals, and prepaid items to current liabilities.
ACQUISITION FEE:
The total charges and commissions paid by any party in connection with the selection of purchase of property by a direct participation program. Included in the total is any real estate commission, acquisition expense, development fee, selection fee or construction fee of a similar nature. The fee is added to the basis in the asset for the purpose of depreciation and calculating gain or loss.
AD VALOREM TAX:
A tax based on the value of real of personal property. Property taxes are the major source of revenues for local governing units.
ADJUSTED BASIS:
The value attributed to an asset or security that reflects any deductions taken on, or capital improvements to, the asset or security. Adjusted basis is used to compute the gain or loss on the sale of other disposition of the asset or security.
ADJUSTED GROSS INCOME (AGI):
Earned income plus net passive income, portfolio income and capital gains.
ADR:
A U.S. security that is a repackaged foreign security. A U.S. bank creates an ADR based on evidence of ownership of a specified number of shares in the foreign security, while the underlying shares are held in a depositary in the issuing company's home country. U.S. investors may buy shares in the foreign company in the form of an ADR. The certificate, transfer, and settlement practices for ADRs are identical to those for U.S. securities.
ADVANCE/DECLINE LINE:
A technical analysis tool representing the total of differences between advances and declines of security prices. The advance/decline line is considered the best indicator of market movement as a whole.
AGENT:
  1. An individual or a firm that effects securities transactions for the accounts of others.
  2. A person licensed by a state as a life insurance agent.
  3. A securities salesperson who represents a broker-dealer or an issuer when selling or trying to sell securities to the investing public; this individual is considered an agent whether he actually receives or simply solicits orders.
ALL OR NONE (AON):
An order that instructs the floor broker to execute the entire order in one transaction; if the order cannot be executed in its entirety, it is allowed to expire.
ALTERNATIVE MINIMUM TAX:
An alternative tax computation that adds certain tax preference items back into adjusted gross income. If the AMT is higher than the regular tax liability for the year, the regular tax and the amount by which the AMT exceeds the regular tax are paid.
AMERICAN DEPOSITARY RECEIPT:
A U.S. security that is a repackaged foreign security. A U.S. bank creates an ADR based on evidence of ownership of a specified number of shares in the foreign security, while the underlying shares are held in a depositary in the issuing company's home country. U.S. investors may buy shares in the foreign company in the form of an ADR. The certificate, transfer, and settlement practices for ADRs are identical to those for U.S. securities.
AMERICAN STOCK EXCHANGE (AMEX):
A private, not-for-profit corporation located in New York City that handles approximately one-fifth of all securities trades within the United States.
AMORTIZATION:
  1. The paying off of debt in regular installments over a period of time.
  2. The ratable deduction of certain capitalized expenditures over a specified period of time.
AMT:
See Alternative Minimum Tax.
ANALYST:
See Securities Analyst.
ANNUAL REPORT (10 K):
Public companies are required to file an annual report with the Securities and Exchange Commission detailing the preceding year's financial results and plans for the upcoming year. Its regulatory version is called "Form 10 K." The report contains financial information concerning a company's assets, liabilities, earnings, profits, and other year-end statistics. The annual report is also the most widely read shareholder communication.
AON:
See All or None.
APPRECIATION:
The increase in an asset's value.
ARBITRAGE:
Arbitrage involves the simultaneous purchase of a security in one market and the sale of it or a derivative product in another market to profit from price differentials between the two markets.
ARBITRATION:
A method where conflict between two or more parties is resolved by impartial persons - arbitrators - who are knowledgeable in the areas in controversy. See Mediation.
ASK:
This is the quoted ask, or the lowest price an investor will accept to sell a stock. Practically speaking, this is the quoted offer at which an investor can buy shares of stock.
ASK PRICE (offer price):
The price at which a Market Maker is willing to sell a security.
ASSET:
Any possession that has value in an exchange.
ASSET ALLOCATION FUND:
A mutual fund that splits its investment assets among stocks, bonds and other vehicles in an attempt to provide a consistent return for the investor.
AT-THE-OPENING ORDER:
An order that specifies it is to be executed at the opening of the market or of trading in that security or else it is to be canceled. The order does not have to be executed at the opening price.
AUCTION MARKET:
A market in which buyers enter competitive bids and sellers enter competitive offers simultaneously. The NYSE is an auction market.
AUTHORIZED STOCK:
The number of shares of stock that a corporation can issue. This number of shares is stipulated in the corporation's state-approved charter and may be changed by a vote of the corporation's stockholders.
AVERAGE PRICE:
A step in determining a bond's yield to maturity. A bond's average price is calculated by adding its face value to the price paid for it and dividing the result by two.
B
BACK-END LOAD:
A commission or sales fee that is charged when mutual fund shares or variable annuity contracts are redeemed. It declines annually, decreasing to zero over an extended holding period up to eight years-as described in the prospectus.
BALANCE OF PAYMENTS (BOP):
An international accounting record of all transactions made by one particular country with others during a certain time period; it compares the amount of foreign currency the country has taken in to the amount of its own currency it has paid out.
BALANCE OF TRADE:
The largest component of a country's balance of payments; it concerns the export and import of merchandise (not services). Debits items include imports, foreign aid, domestic spending abroad and domestic investments abroad. Credit items include exports, foreign spending in the domestic economy and foreign investments in the domestic economy.
BALANCE SHEET:
A report of a corporation's financial condition at a specific time.
BALLOON MATURITY:
A repayment schedule for an issue of bonds wherein a large a number of the bonds come due at a prescribed time (normally at the final maturity date); a type of serial maturity.
BASIS POINT:
A measure of a bond's yield, equal to 1/100 of 1 percent of yield. A bond whose yield increases from 5.0 percent to 5.5 percent is said to increase by 50 basis points.
BASIS:
Regarding a futures contract, the difference between the cash price and the futures price observed in the market. Also, it is the price an investor pays for a security plus any out-of-pocket expenses. It is used to determine capital gains or losses for tax purposes when the stock is sold.
BEAR:
An investor who acts on the belief that a security or the market is falling or will fall.
BEAR MARKET:
A bear market is one in which prices are low or declining; a bull market is one in which prices are high or rising.
BEST ASK:
The lowest quoted offer of all competing Market Makers to sell a particular stock at any given time.
BEST BID:
The highest quoted bid of all competing Market Makers to buy a particular stock at any given time.
BETA:
A statistical measure of a stock's volatility compared with the overall market. A beta of less than 1 indicates lower risk than the market; a beta of more than 1 indicates higher risk than the market.
BETA COEFFICIENT:
A means of measuring the volatility of a security or a portfolio of securities in comparison with the market as a whole. A beta of 1 indicates that the security's price will move with the market. A beta more volatile than the market. A beta less than 1 means that it will be less volatile than the market.
BID:
An indication by an investor, a trader or a dealer of a willingness to buy a security; the price at which an investor can sell to a broker-dealer.
BID PRICE:
The quoted bid at which a Market Maker is willing to buy a stock.
BLOCK TRADE:
A purchase or sale of a large quantity of stock, generally 10,000 shares or more.
BLUE CHIP STOCK:
The equity issues of financially stable, well-established companies that have demonstrated their ability to pay dividends in both good and bad times.
BLUE-SKY LAWS:
State laws that require issuers of securities to register their offerings with the state before they can be sold to its residents. Most blue-sky laws include provisions relating to fraudulent activities and the licensing of people selling securities. NASDAQ National Market securities, subject to higher qualifications standards, are exempted from registration requirements under most states' blue-sky laws as are those listed on exchanges.
BOARD OF DIRECTORS:
The controlling bodies of NASD Regulation, Inc. and The NASDAQ Stock Market, Inc.
BOND:
A long-term promissory note in which the issuer agrees to pay the owner the amount of the face value on a future date and to pay interest at a specified rate at regular intervals.
BOND FUND:
A mutual fund whose investment objective is to provide stable income with minimal capital risk. It invests in income-producing instruments, which may include corporate, government or municipal bonds.
BOND QUOTE:
One of a number of quotations listed in the financial press and most daily newspapers that provide representative bid prices for the previous day's bond market. Quotes for corporate and government bonds are percentages of the bonds' face values (usually $1000). Corporate bonds are quoted in increments of 1/8, where a quote of 99 1/8 represents 99.125 percent of par ($1,000), or $991.25. Government bonds are quoted in 1/32nds. Municipal bonds may be quoted on a dollar basis or on a yield-to-maturity basis.
BOND RATING:
An evaluation of the possibility of a bond issuer's default, based on an analysis of the issuer's financial condition and profit potential. Standard & Poor's, Moody's Investors Service and Fitch Investors Service, among others, provide bond rating services.
BOOK VALUE PER BOND:
A measure of the amount of producing assets behind each corporate bond, calculated by dividing net tangible assets by funded debt.
BOOK VALUE PER SHARE:
A measure of the net worth of each share in common stock. It is calculated by subtracting intangible assets and preferred stock from total net worth, then dividing the result by the number of shares of common outstanding.
BREAKEVEN POINT:
The point at which gains equal losses.
BREAKOUT:
In technical analysis, the movement of a security's price through an established support or resistance level.
BROAD-BASED INDEX:
An index designed to reflect the movement of the market as a whole. Examples include the S & P 500, the AMEX Major Market Index and the Value Line Composite Index.
BROKER:
An individual or firm who acts as an intermediary between a buyer and seller, usually charging a commission.
BROKER-DEALER:
NASD member firms that act as securities dealers or brokers, or perform both functions.
BULL:
An investor who acts on the belief that a security or the market is rising or will rise.
BULL MARKET:
A bear market is one in which prices are low or declining; a bull market is one in which prices are high or rising.
BUSINESS CYCLE:
A predictable long-term pattern of alternating periods of economic growth and decline. The cycle passes through four stages: expansion, peak, contradiction and trough.
BUY-IN:
The procedure that the buyer of a security follows when the seller fails to complete the contract by delivering the security. The buyer closes the contract by delivering the security. The buyer closes the contract by buying the security in the open market and charging the account of the seller for transaction fees and any loss caused by changes in the markets.
BUYING POWER:
The amount of fully margined securities that a margin client can purchase using only the cash, securities and special memorandum account balance and without depositing additional equity.
BUY STOP ORDER:
An order to buy a security that is entered at a price above the current offering price and that is triggered when the market price touched or goes through the buy stop price.
C
CALL:
  1. An option contract giving the owner the right to buy a specified amount of an underlying security at a specified price within a specified time.
  2. The act of exercising a call option.
CALLABLE BOND:
A type of bond issued with a provision allowing the issuer to redeem the bond before maturity at a predetermined price.
CAPITAL:
Accumulated money or goods available for use in producing more money or goods.
CAPITAL APPRECIATION:
A rise in the asset's market price.
CAPITAL ASSET:
All tangible property, including securities, real estate and other property, held for the long term.
CAPITAL GAIN:
The profit realized when a capital asset is sold for a higher price than the purchase price.
CAPITAL LOSS:
The loss incurred when a capital asset is sold for a lower price than the purchase price.
CAPITALIZATION:
The sum of a corporation's long-term debt, stock and surpluses.
CAPPING:
Placing selling pressure on a stock in an attempt to keep its price low or to move its price lower; this violates the NASD Rules of Fair Practice.
CASH ACCOUNT:
An account in which the customer is required by the SEC's Regulation T to pay in full securities purchased not later than two days after the standard payment period set by the NASD's Uniform Practice Code.
CASH DIVIDEND:
Money paid to a corporation's stockholders out of the corporation's current earnings or accumulated profits. The board of directors must declare all dividends.
CASH EQUIVALENT:
A security that can be readily converted into cash. Examples include Treasury bills, certificates of deposit and money-market instruments and funds.
CASH FLOW:
The money received by a business minus the money paid out. Cash flow is also equal to net income plus depreciation or depletion.
CHANGE:
  1. For an index or average, the difference between the current value and the previous day's market close.
  2. For a stock or bond quite, the difference between the current price and the last trade of the previous day.
CHICAGO BOARD OF TRADE (CBOT):
The oldest commodity exchange in the United States; established in 1886. The exchange lists agriculture commodity futures such as corn, oats and soybeans, in addition to more recent innovations such as GNMA mortgages and the NASDAQ 100 Index.
CHINESE WALL:
A term used to describe procedures enforced within a securities firm that separate the firm's departments to restrict access to non-public, material information. The procedures help NASD members avoid the illegal use "inside" information.
CHURNING:
Excessive trading in a customer's account by a registered representative who ignores the customer's interests and seeks only to increase commissions. This violates the NASD Rules of Fair Practice.
CLEARING AGENCY:
An intermediary between the buy and sell sides in a securities transactions that receives and delivers payments and securities. Any organization that fills this function, including a securities depository but not including a Federal Reserve Bank is considered a clearing agency.
CLOSE:
The price of the last transaction for a particular security on a particular day.
CLOSED-END INVESTMENT COMPANY:
An investment company that issues a fixed number of shares in an actively managed portfolio of securities. The shares may be of several classes; they are traded in the second-counter. The market price of the shares is determined by supply and demand and not by net asset value.
COINCIDENT INDICATOR:
A measurable economic factor that varies directly and simultaneously with the business cycle, thus indicating the current state of the economy. Examples include nonagricultural employment, personal income and industrial production.
COLLATERAL:
Certain assets set aside and pledged to a lender for the duration of a loan. If the borrower fails to meet obligations to pay principal or interest, the lender has claim to the assets.
COMMERCIAL BANK:
An institution that is in the business of accepting of accepting deposits and making business loans. Commercial banks may not underwrite corporate securities or most municipal bonds.
COMMERCIAL PAPER:
An unsecured, short-term promissory note issued by a corporation for financing accounts receivable and inventories. It is usually issued at a discount reflecting prevailing market interest rates. Maturities range up to 270 days.
COMMISSION:
Fees paid to a broker for executing a trade based on the number of shares traded or the dollar amount of the trade.
COMMITTEE ON UNIFORM SECURITY IDENTIFICATION PROCEDURES IDENTIFICATION NUMBER:
A unique nine-character alpha/numeric code appearing on the face of each stock certificate that is assigned to a security by Standard & Poor's Corporation. The number is used to expedite clearance and settlement.
COMMON STOCK:
A class of securities representing ownership and control in a corporation and that may pay dividends as well as appreciate in value.
COMPLIANCE DEPARTMENTS:
Departments set up in all organized stock markets to oversee market activity and make sure that trading complies with Securities and exchange Commission and other Exchange regulation.
CONFIRMATION:
Formal memorandum from a broker to a client giving details of securities transaction. When a broker acts as a dealer, the confirmation must disclose that fact to a customer.
CONSUMER PRICE INDEX (CPI):
A measure of price changes in consumer goods and services used to identify periods of inflation or deflation.
CONVERTIBLE BOND:
A bond that can be exchanged at the option of the holder into preferred or common stock at a present ratio. See Common Stock, Preferred stock.
CORPORATE BOND:
A debt security issued by a corporation. A corporate bond typically has a par value of $1,000, is tradable, has a term maturity and is traded on a major exchange.
CORPORATION:
The most common form of business organization, in which the organization's total worth is divided into shares of stock, each share representing a unit of ownership. A corporation is characterized by a continuous life span and its owners' limited liability.
COUPON BOND:
A debt obligation with attached coupons representing semiannual interest payments. The holder submits the coupons to the trustee to receive the interest payments. The issuer keeps no record of the purchaser, and the purchaser's name is not printed on the certificate.
CURRENT ASSETS:
Cash and other assets that are expected to be converted into cash within the next 12 months. Examples include such liquid items as cash and equivalents, accounts payable, accrued wages payable and current long-term debt.
CURRENT LIABILITIES:
A corporation's debt obligations due for payment within the next 12 months. Examples include accounts payable and current long-term debt.
CURRENT RATIO:
A measure of a corporation's liquidity; that is, its ability to transfer assets into cash to meet current short-term obligations. It is calculated by dividing total current assets by total current liabilities.
CURRENT YIELD:
The annual rate of return on a security calculated by dividing the interest or dividends paid by the security's current market price.
CUSIP NUMBER:
See Committee on Uniform Security Identification Procedures number.
CYCLICAL INDUSTRY:
A fundamental analysis term for an industry that is sensitive to the business cycle and price changes. Most cyclical industries produce durable goods such as raw materials and heavy equipment.
D
DAY ORDER: 
An order that is valid only until the close of trading on the day it is entered; if it is not executed by the close of trading, it is canceled.
DEALER:
Any person or company in the business of buying and selling securities for his or her own account, through a broker or otherwise. See Broker
DEALER MARKET:
NASDAQ is a competing dealer market, different from an auction market in that many dealers, called Market Makers, use their own capital, research, retail, and/or systems resources to represent a stock. Many Market Makers can represent the same stock; thus, they compete with each other to buy and sell that stock. Auction markets have only one person, a specialist, who in a centralized location or "floor," matches incoming orders to buy and sell each stock. Specialists are not allowed to provide research or retail sales support, and are limited to only one firm's available capital. The average NASDAQ stock has eleven Market Making firms that risk and invest their capital.
DEBENTURE:
An unsecured bond backed solely by the general credit of a company.
DEBIT BALANCE:
The amount of money a customer owes a brokerage firm.
DEBT FINANCING:
Raising money for working capital or for capital expenditures by selling bonds, bills or notes to individual or institutional investors. In return for the money lent, the investors become creditors and receive the issuer's promise to repay principal and interest on the debt.
DEBT SECURITY:
A security representing an investor's loan to an issuer such as a corporation, a municipality, the federal government or a federal agency. In return for the lone, the issuer promises to repay the debt on a specified date and to pay interest.
DEBT SERVICE:
The schedule for repayment of interest and principal (or the scheduled sinking fund contribution) on an outstanding debt.
DEBT-TO-EQUITY RATIO:
The ration of total long-term debt to total stockholders' equity; it is used to measure leverage.
DECLARATION DATE:
The date on which a corporation announces an upcoming dividend's amount, payment date and record date.
DEDUCTION:
An item or expenditure subtracted from adjusted gross income to reduce the amount of income subject to tax.
DEFAULT:
The failure to pay interest or principal promptly when due.
DEFAULT RISK:
A degree of probability that a bond's issuer will default in the payment of either principal or interest.
DEFERRED ANNUITY:
An annuity contract that delays payment of income, installments or a lump sum until the investors elects to receive it.
DELETED:
A security is no longer included in The NASDAQ Stock Market.
DEMAND:
A consumer's desire and willingness to pay for a good or service.
DEPOSITORY BANK:
When a company decides to issue American Depositary Receipts, it appoints an authorized depositary, normally part of a large U.S. banking institution or trust company. See American Depositary Receipts.
DEPRECIATION:
A tax deduction that compensates a business for the cost of certain tangible assets.
DEPTH OF MARKET:
The number of shares of a security that can be bought or sold at the bid and ask prices near the market without causing a dramatic change in price. See Liquidity Ratio
DERIVATIVE:
A generic term often applied to a wide variety of financial instruments that derive their cash flows, and therefore their value, by reference to an underlying asset, reference rate, or index.
DILUTION:
A reduction in earnings per share of common stock. Dilution occurs through the issuance of additional shares of common stock and the conversion of convertible securities.
DIRECT PARTICIPATION PROGRAMS (DPP):
Partnership agreements that provide a flow-through of tax consequences to the participants.
DISCOUNT:
The difference between the lower price paid for a security and the security's face amount at issue.
DISCOUNT RATE:
The interest rate charged by the 12 Federal Reserve Banks for short-term loans made to member banks.
DISCRETIONARY ACCOUNT:
An account empowering a broker or adviser to buy and sell without the client's prior knowledge and consent.
DISPOSABLE INCOME (DI):
The sum that people divide between spending and personal savings
DISTRIBUTION CAPABILITY:
An investment banker or underwriter's ability to sell shares.
DIVERSIFICATION:
A risk management technique that mixes a wide variety of investments within a portfolio, thus minimizing the impact of any one security on overall portfolio performance.
DIVERSIFIED COMMON STOCK FUND:
A mutual fund that invests its assets in a wide range of common stocks. The fund's objectives may be growth, income or a combination of both.
DIVIDEND:
Distributions to stockholders of cash or stock declared by the company's board of directors.
DIVIDEND NOTIFICATION:
A requirement that companies notify the Uniform Practice Department of The NASDAQ Stock Market at least 10 days in advance of the record date of a stock dividend so that NASDAQ can set the ex-dividend date.
DIVIDEND PAYOUT RATIO:
A measure of a corporation's policy of paying cash dividends, calculated by dividing the dividends paid on common stock by the net income available for common stockholders. The ratio is the complement of the retained earnings ratio.
DJIA:
See Dow Jones Industrial Average
DOLLAR COST AVERAGING:
A system of buying mutual fund shares in fixed dollar amounts at regular fixed intervals, regardless of the share's price. The investor purchases more shares when prices are low and fewer shares when prices are high, thus lowering the average cost per share over time.
DOW JONES AVERAGES:
The most widely quoted and oldest measures of change in stock prices. Each of the four averages is based on the prices of a limited number of stocks in a particular category.
DOW JONES INDUSTRIAL AVERAGE (DJIA):
The most widely used market indicator, composed of 30 large, actively traded issues of industrial stocks.
DOWNTICK:
A transaction executed at a price lower than the preceding transaction in that security, or a new quote registered at a lower price than the preceding quote in that security.
DUE DILIGENCE:
A thorough investigation of a company that is preparing to go public, undertaken by the company's underwriter and accounting firm.
E
EARNED INCOME:
Income derived from active participation in a trade or business, including wages, salary, tips, commissions and bonuses.
EARNINGS PER SHARE:
A corporation's net income available for common stock divided by its number of shares of common stock outstanding.
EQUITY FINANCING:
Raising money for working capital or for capital expenditures by selling common or preferred stock to individual or institutional investors. In return for the money paid, the investors receive ownership in the corporation.
ECN:
See Electronic Communication Network (ECN).
ELECTRONIC COMMUNICATION NETWORK (ECN):
Any electronic system that widely disseminates to third parties orders entered by an exchange Market Maker or OTC Market Maker, and permits such orders to be executed against in whole or in part.
ELIGIBILITY RULES:
The Code of Arbitration states that no claim shall be eligible for submission to arbitration where six years have elapsed from the occurrence or event giving rise to the controversy.
EQUITY:
The ownership interest of stockholders in a company. Also, the excess of the market value of securities over debit balances in a margin account.
EXCESSIVE TRADING:
A broker excessively trades an account for the purpose of increasing his or her commissions, rather than to further the customer's investment goals.
EXCESS SPREAD POLICY:
The NASD requirement that prohibits Market Makers from entering quotations on The NASDAQ Stock Market that exceed prescribed limits for maximum allowable spreads.
EXCHANGE:
Any organization, association or group of persons that maintains or provides a marketplace in which securities can be bought and sold. An exchange need not be a physical place, and several strictly electronic exchanges do business around the world.
EX-DIVIDEND DATE:
The date on or after which a security begins trading without the dividend (cash or stock) included in the contract price.
EX PARTE COMMUNICATION:
Communication by one party only with the arbitrator. See Arbitration.
EXECUTIVE SESSIONS:
A private conference between the arbitrators during the course of the hearing to determine matters that have arisen such as evidentiary objections or motions.
F
FACE VALUE:
The dollar amount assigned to a security by the issuer. For an equity security, face value is usually a small dollar amount that bears no relationship to the security's market price. For a debt security, face value is the amount repaid to the investor when the bond matures, usually $1,000.
FEDERAL FUNDS RATE:
The interest rate charged by one institution lending federal funds to another.
FEDERAL OPEN MARKET COMMITTEE (FOMC):
A committee that makes decisions concerning the Fed's operations to control the money supply.
FEDERAL RESERVE BOARD:
A federal government institution created by Congress to administer the nation's credit and monetary policies. Among other things, the Board of Governors of the Federal Reserve System sets the initial amount of credit that broker/dealers (as well as other lenders) may extend to customers to purchase securities.
FIDUCIARY:
A person legally appointed and authorized to hold assets in trust for another person and manage those assets for that person's benefit.
FINAL PROSPECTUS:
The legal document that states a new issue security's price, delivery date and underwriting spread, as well as other material information. It must be given to every investor who purchases a new issue of registered securities.
FISCAL POLICY:
The federal tax and spending policies set by Congress or the President. These policies affect tax rates, interest rates and government spending in an effort to control the economy.
FIXED ANNUITY:
An insurance contract in which the insurance company makes fixed dollar payments to the annuitant for the term of the contract, usually until the annuitant dies. The insurance company guarantees both earnings and principal.
FLAT YIELD CURVE:
A chard showing the yields of bonds with short maturities as equal to the yields of bonds with long maturities.
FLOATING DEBT:
An obligation payable on demand or having a very short maturity.
FLOOR TRADER:
An exchange member who executes transactions from the floor of the exchange only for his own account.
FORCED SELL-OUT:
The action taken when a customer fails to meet the deadline for paying for securities and no extension has been granted the broker-dealer must liquidate enough securities to pay for the transaction.
FORM 10K:
An annual audited report that covers essentially all the information contained in an issuing company's original registration statement. A Form 10K is due within 90 days of year-end.
FORM 10Q:
A quarterly report containing a corporation's unaudited financial data. Certain nonrecurring events that arise during the quarterly period, such as significant litigation, must be reported. A Form 10Q is due 45 days after the end of each of the first three fiscal quarters.
401(k) PLAN:
A tax-deferred defined contribution retirement plan offered by an employer.
403(b) PLAN:
A tax-deferred annuity retirement plan available to employees of public schools and certain nonprofit organizations.
FREERIDING:
Buying and immediately selling securities without making payment. This practice violates the SEC's Regulation T.
FRONT-END LOAD:
  1. A mutual fund commission or sales fee that is charged at the time shares are purchased. The load is added to the share's net asset value when calculating the public offering price.
  2. A system of sales charge for contractual plans that permits up to 50% of the first year's payments to be deducted as a sales charge. Investors have a right to withdraw from such a plan, but some restrictions apply if this occurs.
FROZEN ACCOUNT:
An account requiring cash in advance before a buy order is executed and securities in hand before a sell order is executed. An account holder under such restrictions has violated the SEC's Regulation T.
FUNDAMENTAL ANALYSIS:
A method of evaluating securities by attempting to measure the intrinsic value of a particular stock. Fundamental analysts study the overall economy, industry conditions and the financial condition and management of particular companies.
G
GENERAL OBLIGATION BOND:
A municipal debt issue backed by the full faith, credit and taxing power of the issuer for payment of interest and principal.
GOOD TILL CANCELED ORDER (GTC): 
An order that is left on the specialist's book until it is either executed or canceled.
GOVERNMENT SECURITY:
Any person or company regularly engaged in the business of effecting transactions in government securities for the account of others. The definition does not include corporations that issue securities exempted by the Secretary of the Treasury, corporations that are empowered by law to issue exempt securities, banks or other insured financial institutions.
GROSS DOMESTIC PRODUCT (GDP):
The total value of goods and services produced in a country during one year. It includes consumption, government purchases, investments, and exports minus imports.
GROWTH FUND:
A diversified common stock fund that has capital appreciation as its primary goal. It invests in companies that reinvest most of their earnings for expansion, research or development.
GUARDIAN:
A fiduciary who manages the assets of a minor or an incompetent for that person's benefit.
GUARENTEED STOCK:
An equity security, generally a preferred stock, issued with a promise from a corporation other than the issuing corporation to maintain dividend payments. The sock still represents ownership in the issuing corporation, but it is considered a dual security.
H
HEAD AND SHOULDERS:
On a technical analyst's trading chart, a pattern that has three peaks resembling a head and two shoulders. The stock price moves up to its first peak (the left shoulder), drops back, then moves to a higher peak (the top of the head), drops again but recovers to another, lower peak (the right shoulder). A head and shoulders top typically forms after a substantial rise and indicates a market reversal. A head and shoulders bottom (an inverted head and shoulders) indicates a market advance.
HEDGE:
An investment made in order to reduce the risk of adverse price movements in a security. Normally, a hedge consists of a protecting position in a related security.
HOLDING PERIOD:
A time period signifying how long the owner possesses a security. It starts the day after a purchase and ends on the day of the sale.
I
INCOME FUND:
A mutual fund that seeks to provide stable current income by investing in securities that pay interest or dividends.
INCOME STATEMENT:
The summary of a corporation's revenues and expenses for a specific fiscal period.
INDEX:
A comparison of current prices to some baseline, such as prices on a particular date. Indexes are frequently used in technical analysis.
INDIVIDUAL RETIREMENT ACCOUNT (IRA):
A retirement investing tool for employed individuals that allows an annual contribution of 100 percent of earned income up to a maximum of $2,000. Some or all of the contribution may be deductible from current taxes, depending on the individual's adjusted gross income and coverage by employer-sponsored qualified retirement plans.
INFLATION:
A persistent and measurable rise in the general level of prices.
INFLATION RISK:
The potential that, due to inflation, a certain amount of money will not purchase as much in the future as it does today
INITIAL PUBLIC OFFERING (IPO):
A corporation's first sale of common stock to the public.
INSIDE INFORMATION:
Material information that has not been disseminated to, or is not readily available to, the general public.
INSIDE MARKET:
The highest bid and the lowest ask (offer) prices among all Market Makers competing in a NASDAQ security; the best bid and ask prices for a security.
INSIDER:
Any person who possesses or has access to material nonpublic information about a corporation. Insiders include directors, officers and stockholders who own more than 10 percent of any class of equity security of a corporation.
INSIDER TRADING ACT:
(1988) Legislation that defines what constitutes the illicit use of nonpublic information in making securities trades and the liabilities and penalties that apply.
INSTITUTIONAL INVESTOR:
A bank, mutual fund, pension fund, or other corporate entity that trades securities in large volumes.
INTEREST:
The charge for the privilege of borrowing money usually expressed as an annual percentage rate.
INVERTED YIELD CURVE:
A chart showing long-term debt instruments having lower yields than short-term debt instruments.
INVESTMENT ADVISOR:
  1. Any person who makes investment recommendations in return for a flat fee or a percentage of assets managed.
  2. For an investment company, the individual who bears the day-to-day responsibility of investing the cash and securities held in the fund's portfolio in accordance with objectives stated in the fund's prospectus.
INVESTMENT BANKER:
The business carried on by a broker or dealer; a business that deals in government or municipal securities; a business that underwrites or distributes securities issues; a business that buys or sells securities for itself or on the account of others. The definition does not include banks or bank deposits.
INVESTMENT PYRAMID:
A portfolio strategy that allocates investable assets according to an investment's relative safety. The pyramid base is composed of low-risk investments, the mid portion is composed of growth investments and the pyramid top is composed of speculative investments.
ISSUER:
A corporation that has distributed to the public securities registered with the SEC.
J
JOINT VENTURE:
The cooperation of two or more individuals or enterprises in a specific business enterprise, rather than in a continuing relationship-as in partnership.
K
KEOGH PLAN:
A qualified tax-deferred retirement plan for persons who are self-employed and unincorporated or who earn extra income through personal services aside from their regular employment.
KEYNSIAN ECONOMICS:
The theory that active government intervention in the marketplace is the best method of ensuring economic growth and stability.
L
LAGGING INDICATOR:
A measurable economic factor that changes after the economy has started to follow a particular pattern or trend. Lagging indicators are believed to confirm long-term trends. Examples include average duration of unemployment, corporate profits and labor cost per unit of output.
LAST SALE REPORTING:
The electronic notification by a Market Maker to the NASDAQ Stock Market of the price and the number of shares involved in a transaction in a NASDAQ security. The notification must be made within 90 seconds of the execution of an order.
LEADING INDICATOR:
A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leasing indicators are believed to predict changes in the economy. Examples include new orders for durable goods, slowdowns in deliveries by vendors and numbers of building permits issued.
LEVERAGE:
Using borrowed capital to increase investment return.
LIABILITY:
A legal obligation to pay a debt owed. Current liabilities are debts payable within 12 months. Long-term liabilities are debts payable over a period of more than 12 months.
LIMIT ORDER: 
An order to buy or sell a security at a customer-specified price; a customer order to buy or sell a specified number of shares of a security at a specific price.
LIMITED PARTNERSHIP:
An investor in a direct participation program who does not participate in the management or control of the program and whose liability for partnership debts is limited to the amount invested in the program.
LIQUIDITY:
The liquidity of a stock is the ease with which the market can absorb volume buying or selling, without dramatic fluctuation in price.
LOCKED MARKET:
The situation created when there is no spread between the bid and the ask on the same security; that is, one market maker bids for a stick at the same price that another market maker quotes its ask price. This violates the NASD Rules of Fair Practice.
M
M1:
A category of the money supply that includes all coins, currency and demand deposits-that is, checking accounts and NOW accounts.
M2:
A category of the money supply that includes M1 in addition to all time deposits, savings deposits and non-institutional money-market funds.
M3:
A category of the money supply that includes M2 in addition to all large time deposits, institutional money-market funds, short-term repurchase agreements and certain other large liquid assets.
MAKE A MARKET:
To stand ready to buy or sell a particular security as a dealer for its own account. A market maker accepts the risk or holding the position in the security.
MARGIN ACCOUNT:
A customer account in which a brokerage firm lends the customer part of the purchase prices of securities.
MARGIN CALL:
The Federal Reserve Board's demand that a customer deposit a specified amount of money or securities when a purchase is made in a margin account; the amount is expressed as a percentage of the market value of the securities at the time or purchase. The deposit must be made within one payment period.
MARGIN:
An account in which a customer purchases securities on credit extended by a broker/dealer. Rules of the Federal Reserve Board and NASD govern margin accounts.
MARKDOWN:
A markdown is a charge subtracted from the selling price of a security that a customer is selling to a dealer/ broker for the broker's/dealer own account.
MARKET CAPITALIZATION:
The price of a stock multiplied by the total number of shares outstanding. Also, the market's total valuation of a public company.
MARKET MAKER SPREAD:
The difference between the price at which a Market Maker is willing to buy a security and the price at which the firm is willing to sell it.
MARKET ORDER: 
An order to buy or sell a stated amount of a security at the best possible price at the time the order is received in the marketplace.
MARKET SURVEILLANCE:
A highly automated, centralized process of investigating and preventing abusive, manipulative, or illegal trading practices in The NASDAQ Stock Market. The Market Surveillance Department is called Market Regulation.
MARKET VALUE:
The market value of a security is the last-sale price multiplied by total shares outstanding. It is calculated throughout the trading day, and is related to the total value of the index.
MARKUP:
The broker/dealer adds a markup to the price when it sells a security to a customer from its own account.
MATERIAL NEWS:
News released by a public company that might reasonably be expected to affect the value of a company's securities or influence investors' decisions. Material news includes information regarding corporate events of an unusual and non-recurring nature, news of tender offers, unusually good or bad earnings reports, and a stock split or stock dividend.
MATURITY:
The span of time until the initial principal amount of a bond must be repaid.
MEMBER FIRM:
A broker/dealer that is a member of the National Association of Securities Dealers, Inc.
MERGER:
A merger is the combination of two or more companies into one enterprise, usually accomplished by the acquiring company exchanging cash or securities for the stock of the company being acquired.
MONETARY POLICY:
Monetary policy describes the Federal Reserve's money supply regulating authority. The Federal Open Market Committee exercises this power in order to maintain price stability and dampen swings in the business cycle.
MONEY MARKET:
The money market is the market for short-term, liquid securities such as negotiable certificates of deposit, Treasury bills, and , commercial paper.
MONEY SUPPLY:
Money supply is a measure of how much money is in the economy. There are various measures of money supply, including M1, M2, M3, and L; these are referred to as monetary aggregates.
MONEY-MARKET FUND:
A money market mutual fund is one which invests only in short-term, money market securities. The average maturity of the funds cannot exceed 90 days. The fund's NAV is held constant at $1 per share which keeps the principal stable at all times. Money funds pay interest on a monthly basis and offer check writing and exchange privileges. Money funds can be taxable or tax-exempt, depending on the portfolio composition.
MOST ACTIVE:
Most active NASDAQ National Market stocks.
MOVING AVERAGE:
A moving average is a statistical tool used by market technicians to determine the momentum of a stock bond or mutual fund. Moving average levels that are above the price of the security are considered bearish, while those below the current price are bullish.
A simple moving average is calculated by adding up all the price data for a specific period to time and then dividing the sum of those prices by the periods used. For example, a 3-day Moving Average is calculated by summing the current day's price closing with the last two day's price closings. The sum of this is then divided by 3. If the average is above the current day's price, the 3-day trend is said to be negative. If it is below the current price, the trend is positive. This process is repeated or "moved" each day and a new average is developed. This is where the term "moving average" is derived.
Stock market technicians look at both long-term and short-term averages to develop a sense of market trends. One of the most watched long-term averages is the 150-day moving average. If stock prices cross above this average, it is a bullish technical sign for the market. For the bond market, a 65-day average is usually tracked for interest rates.
MULTIPLIER EFFECT:
The increase of money supply in the economy as a result of the Federal Reserve's actions that allow bank members to be able to lend more money than it takes in.
MUNICIPAL BOND FUND:
A municipal or "tax-free" bond fund is a mutual fund that invests primarily in municipal bonds. Income generated by municipal bond funds is exempt from federal taxes and is also exempt from state taxes to the extent the fund owns bonds from the investor's state. Municipal bond funds are offered in a variety of maturities and types.
There are several types of municipal bond funds with various maturities. They include national tax-free, state tax-free, insured tax-free, and high yield tax-free. Most municipal bond funds pay interest on a monthly basis. Interest may be reinvested in the fund or taken as a distribution.
MUNICIPAL BOND:
Bonds issued by states, cities, counties, and towns to fund public capital projects like roads, schools, sanitation facilities, bridges, as well as operating budgets. These bonds are exempt from federal taxation and from state and local taxes for the investors who reside in the state where the bond is issued.
MUTUAL FUND:
A mutual fund is an investment company that pools the money of many individual investors to purchase common stocks, bonds, or other financial instruments. Professional management and diversification are two benefits of mutual fund investing.
Open-end mutual funds are the most common type of mutual fund. Unlike closed-end funds, open-end funds do not have a fixed number of shares. An open-end fund will issue new shares when investors put in money and redeem shares when investors withdraw money. The price of a share is determined by dividing the total net assets of the fund by the number of shares outstanding. This figure is called the fund's net asset value or NAV. The net asset value of an open-end fund is calculated at the end of each trading day.
Closed-end mutual funds issue a fixed number of shares in an initial public offering, trading thereafter in the open market. In this regard, they resemble stocks more than open-end mutual funds. Like a stock, a closed-end fund is purchased through a stockbroker. Although a share of a closed-end fund has a net asset value, its price is determined by supply and demand and, as a result, the price of a share at any given time may be more or less than the fund's net asset value. When the share price is lower than the fund's net asset value, a closed-end fund's shares are said to be trading at a discount. Conversely, when shares trade higher than the fund's net asset value, they are said to be trading at a premium.
Closed-end funds are sometimes confused with open-end funds that have been closed to new investors. Typically, existing shareholders of open-funds that have been closed can continue to purchase shares.
Professional Management. Money invested in a mutual fund is managed by professionals who decide investment strategy on behalf of shareholders (an exception to this is index funds, which seek to replicate the performance of specific indexes). Mutual fund managers base their decisions on extensive knowledge and research of market conditions and the financial performance of individual stocks and specific securities.
Diversification Most mutual fund managers invest in a variety of securities in order to create a diversified portfolio. Diversification helps to reduce risk as losses in some securities are offset by gains in others. It would be difficult for an individual investor to build a portfolio as diversified as the typical mutual fund.
N
NASDAQ INTERNATIONAL SERVICE:
The extension of The NASDAQ Stock Market to the United Kingdom. The service supports a European trading session from 3:30 a.m. to 9 a.m. eastern time (U.S.). This enables participants to monitor trade during London market hours. NASD members are eligible to participate in this session through their U.S. trading facilities or approved United Kingdom affiliates.
NASDAQ NATIONAL MARKET SECURITIES:
More than 3,900 companies that are the larger and generally more actively-traded NASDAQ securities.
NASD:
The largest self-regulatory organization for the securities industry in the United States. NASD is responsible for the operation and regulation of NASDAQ and the over-the-counter securities markets; it is the parent company of NASD Regulation, Inc., and The NASDAQ Stock Market, Inc.
NASDAQ:
The National Association of Securities Dealers Automated Quotation system.
NEGOTIABLE CERTIFICATE OF DEPOSIT:
A time deposit of funds with the issuing bank, with a minimum face value of $100,000.
NET ASSET VALUE:
Net asset value reflects the market value of stocks, bonds and net cash divided by outstanding shares. The term "% difference" indicates the percentage premium or discount of the market price over the net asset value.
For a mutual fund, net asset value, or NAV, is calculated by dividing the net assets of the fund by the number of shares outstanding. The net asset value of an open-end fund is calculated at the end of each trading day. Shares of an open-end mutual fund are bought and sold at the fund's net asset value. Although closed-end funds have a net asset value, the price of a share of a closed-end fund fluctuates according to supply and demand. Shares of closed-end funds, which trade over-the-counter or on major stock exchanges, may trade for more or less than their net asset value.
The net asset value of an open-end mutual fund is calculated at the end of each trading day, normally at 4:00 p.m. ET.
Changes in net asset value represent changes in the underlying market value of the financial instruments held. The net asset value of stock and bond funds can move every day. Usually, stock funds will have wider price movements than bond funds.
Money market funds are a breed apart from stock and bond funds. Their principal difference is that they keep their share prices at a constant $1 per share. They're able to do this because they invest in very short-term debt instruments. Price fluctuations are usually so small that money market funds can maintain a constant dollar price.
Shares of closed-end funds trade over-the-counter or on stock exchanges. Although a share of a closed-end fund has a net asset value, the price of a share, which is determined by supply and demand, may not be equivalent to its net asset value. Indeed, closed-end funds typically sell at a discount to their underlying net asset value.
NET CHANGE:
The difference between today's last trade and the previous day's last trade.
NET INCOME:
Net income is the difference between a company's total sales and its total costs and expenses.
For banks, it is the final profit before dividends (common/preferred) from all sources after deduction of expenses, taxes, and fixed charges, but before any discontinued operations or extraordinary items. For industrial companies. For industrial companies, it is comprised of profits derived from all sources after deduction of expenses, taxes, and fixed charges, but before any discontinued operations, extraordinary items and dividends (preferred/common). For industrial companies, it includes income from operations, after security gains or losses, and before results of discontinued operations and special items. For real estate trusts and savings & loans, it is profits for the year, including any gains/losses on the sale of real estate but exclude extraordinary items. For utilities, it is the amount of earnings for the year that is available for preferred and common dividend payments.
NET WORTH:
Also known as shareholders' equity, is the amount by which assets exceed liabilities.
NEW YORK STOCK EXCHANGE (NYSE):
The largest stock exchange in the United States.
NO-LOAD FUND:
A no-load fund is a mutual fund that does not charge a sales fee for the purchase of new or additional shares. No-load funds are available in many varieties, including stock, bond, and money funds. Most no-load funds are sold directly by a fund company rather than through a broker.
The no-load mutual fund's counterpart is the load fund. Load funds normally charge a one-time fee for the purchase or redemption of shares. Loads, which are typically used to pay commissions, average about 4%, but can be as high as 8%. A front-end load can take a bite out of a fund investor's first-year return.
For many years, mutual funds were sold by salespeople working for fund companies, brokerage firms, and insurance companies. Funds levied a stiff load, or commission, to compensate the broker. In the early 1970s, the stock market plummeted, and so did mutual fund sales. To shake off the slump, some companies started to sell their funds directly to investors without a sales charge. Since that time, the popularity of no-load funds has been tremendous. Today, most mutual funds are no-load funds.
A clear advantage of a no-load fund is that an investor's money goes to work from the start. In addition, a no-load fund investor usually deals directly with the fund company rather than through a broker.
A disadvantage of no-load funds is that there is often no broker to help an investor find the appropriate fund for his or her investment objective. Today, however, most of the larger no-load mutual fund families provide knowledgeable staff that can help investors select funds that are appropriate for them.
NOMINAL YIELD:
A nominal yield is the annual interest paid by a security divided by the par value of the security. Depending on current interest rates, the nominal yield may be substantially higher or lower than , current yield. The nominal yield of a $1,000 bond that pays $95 in interest annually is 9.5% (95/1,000).
NORMAL YIELD CURVE:
Also known as positive yield curve, is a chart graphing long-term debt instruments having higher yields than short-term debt instruments.
NOTE:
A short-term debt security, usually maturing in five years or less.
O
ODD LOT THEORY:
The odd-lot theory is an investment strategy based on the belief that small investors who conduct odd-lot transactions are generally wrong in market timing and direction. The odd-lot theory states that strong odd-lot buying in a rising market is a sign of weakness and signals a retreat in the future. Likewise, an increase of odd-lot selling in a declining market is a sign of strength and signals a potential recovery.
OFFSET:
An offset is a securities transaction that replaces or reverses a future position nearing maturity or a, hedge designed to protect a gain or price.
OPEN ORDER:
An order to buy or sell a security that remains in effect until it is either canceled by the customer or executed.
OPERATING EXPENSES:
The daily costs accumulated in running a business.
OPERATING INCOME:
For industrial companies, this term refers to net sales and operating revenues, less cost of goods sold and operating expenses (including research & development, profit sharing, exploration and bad debt, but excluding depreciation and amortization).
OPTION:
An instrument that gives the owner the right to buy or sell a specified number of shares of a specified stock at a specified price within a specified period of time. A call option allows the buyer to purchase the underlying stock at any time up to the expiration date of the contract. A put option allows the buyer to sell the underlying stock at any time up to the expiration date of the contract.
OVER THE COUNTER MARKET:
Securities that are not listed and traded on an organized exchange.
P
PAR VALUE:
Par value is the face or maturity value of a bond.
PARITY:
Parity is a situation in which the value of the underlying security equals the market value of the convertible security. For example, parity exists if a bond is convertible into 25 shares of common stock while the bond sells for $1,000 and the stock sells for $40 a share.
PARTNERSHIP:
A form of business organization in which two or more individuals manage the business. The individuals are equally and personally liable for its debts.
PAYMENT DATE:
A payment date is the date on which a dividend or interest payment will be made in cash.
PAYOUT RATIO:
A company's payout ratio indicates the percentage of its earnings paid out in dividends. It is calculated by dividing the annual dividend by the earnings. Typically, growth companies retain earnings to spur further growth, while old-line companies, banks, and utilities tend to have higher pay-out ratios. For insurance companies, earnings after gains/losses on security transactions are used.
PENALTY BID:
A syndicate manager's or underwriter's offer to buy a security at specific price during a new issue distribution. The bid acts to stabilize the price of the stock, to facilitate distribution. The bid, also called "pegging," is permitted under Securities and Exchange Commission Rule 10b-7; otherwise the practice is prohibited.
PERSONAL INCOME:
Personal income is a measure of income that is published by the Department of Commerce. It represents the total income that consumers receive, including most of the national income earned in the production of gross domestic product.
Personal income measures wages, salaries and other income sources, including rental income, government subsidy payments, interest income, and dividend income. The wage and salary component, in particular, can be reasonably estimated using payrolls and earnings data from the employment report.
Overall, personal income is a fair indicator of future consumer demand. Rising income brings greater spending, just as lower income means lower expenditures. Recessions tend to take place when consumers abate spending, driving down income growth. Expansions are usually consistent with increased income growth.
Bond prices, which react negatively to strong economic data, generally rise on weak personal income growth. The reason is that income growth puts upward
PINK SHEETS:
Daily printed listings containing quotations for thousands of over-the-counter stocks that are not listed on any of the major stock markets. Dealers acting as Market Makers in the individual securities enter these quotations. The pink sheets are printed by the National Quotation Bureau.
PORTFOLIO INSURANCE:
Generally, Portfolio insurance sets a floor below which the value of the portfolio would be protected, or insured. There are many variations on how portfolio insurance is implemented including the use of options, futures, and leverage.
PORTFOLIO MANAGER:
The combined holding of more than one stock, bond, commodity, real estate investment, or other asset by an individual or institutional investor.
PRE-SYNDICATE BID:
A bid entered before the effective date of a secondary offering, made to stabilize the price during distribution. The bid is permitted under Securities and Exchange Commission Rule 10b-7; otherwise the practice is prohibited.
PREFERRED STOCK:
A security that usually pays a fixed dividend and that gives the holder a claim on corporate earnings and assets that is superior to that of holders of common stock.
PREMIUM:
A premium is the amount by which the market value of a preferred stock or bond exceeds its face value or par. For options, the premium is the amount paid by the Option buyer for the right to purchase or sell a security during a specified time frame.
PREMIUM BOND:
Bonds that sell above their "par" or "face" value are called premium bonds. For example, a bond with a face value of $1,000 selling for $1,100 would be considered a premium bond. The premium in this case is $100.
Bonds that sell above their "par" or "face" value are called premium bonds. For example, a bond with a face value of $1,000 selling for $1,100 would be considered a premium bond. The premium in this case is $100.
Bonds that sell at a premium do so because the rate of interest they pay is higher than the current market rate for that bond. If a 10-year bond had a coupon rate of 10%, and a new 10-year bond was issued with a rate of 9%, investors would not sell the older 10% bond unless the offered price were increased above par. As the bond's price increased, its yield to maturity would decrease. The price of the bond would rise until its yield equaled 9%, or current market rates. Because this bond now sells above its par value, it is a premium bond.
The price of premium bonds are less sensitive to a given change in interest rates relative to bonds trading at par, or at a discount. Investors that wished to protect a bond portfolio from an expected rise in interest rates would favor premium bonds over bonds selling at par, or at a discount to par. Conversely, investors that expected a fall in interest rates would favor bonds selling at a discount over bonds selling at par, or a premium to par. A bond's price/yield relationship can be estimated using duration and , convexity. All else being equal, a bond trading at a larger premium to par will have a lower duration.
Bonds can also sell at a premium if their credit rating has been upgraded, or if the issue's liquidity has increased. When a bond's perceived , credit risk decreases, or the issue's , liquidity risk decreases, investors will be willing to accept a lower yield. This decrease in required yield translates into a higher price for the bond. If a decrease in a bond's credit or liquidity risk causes it to sell above par, it will be considered a premium bond.
Investors who own premium bonds should be aware of , call risk. Call risk is the risk that a callable bond will be redeemed prior to maturity. As interest rates fall, a bond issuer's incentive to redeem higher cost debt increases. If a bond issue is called early in response to falling rates, an investor will face a lower interest rate environment in which to invest the paid-off principal. Annual income generated from the reinvested cash will be lower. This is sometime called an "income squeeze," because the investor is getting squeezed out of the higher income amounts.
PRESENT VALUE:
The value today of a future payment discounted at some appropriate interest rate.
PREVIOUS DAY'S CLOSE:
The previous trading day's last reported trade.
PRICE-EARNINGS RATIO:
The price of a share of a stock divided by earnings per share, usually calculated using the latest year's earnings. The p/e ratio is also called the multiple.
PRICE-TO-BOOK RATIO:
Also known as Market-to-Book, the measurement compares a stock's market value to its book value. It is calculated by dividing the current price by common stockholders' equity per share (book value).
PRICE-TO-SALES RATIO:
A method for finding a stock's valuation in light of its own past performance, other companies or the market itself. It is calculated by dividing a stock's current price by its revenues per share.
PRIMARY MARKET:
The primary market is the market for new security issues typically involving the use of investment bankers to float the issue. In recent times, more companies have handled their own security issues in the primary market.
PRIME RATE:
The prime rate is a loan rate charged by banks to their best or "prime" customers. The rate is determined by general trends in interest rates. As rates decline, the prime rate will also move lower. However, it does not typically move on a day-by-day basis. Prime rate changes are usually led by major money center banks. Normally, the prime rate will move in steps and then remain constant until a major rate change has been made. This usually happens when the Federal Reserve makes major changes in monetary policy.
PRINCIPAL ORDERS:
Activity by a broker/dealer when buying or selling for its own account and risk. Also called principal trades.
PROFIT MARGIN:
A measurement to compare stocks within industries. It is calculated by dividing annual net earnings after taxes by revenues.
PROFIT-SHARING PLAN:
A profit-sharing plan, also known as a defined contribution plan, is an agreement between employers and employees that allows employees to share in the employer's profits. Under this program, when the company has a profitable year it makes a contribution to each employee's profit-sharing account. This can then be used to invest in stock, bonds or other investment vehicles on a tax-deferred basis.
PROGRAM TRADING:
Program trading is a computerized strategy used by institutional investors. Simultaneous buy and sell transactions are triggered by rising or falling prices in order to profit from price discrepancies between an index of stock futures or options and the market price of the underlying stocks.
PROGRESSIVE TAX:
A tax that takes a larger percentage of the income of high-income people than of low-income people.
PROSPECTUS:
A formal written offer to sell securities that sets forth the plan for a proposed business enterprise, or the facts concerning an existing one that an investor needs to make an informed decision.
PROXY:
Written power of attorney given by a shareholder of a corporation, authorizing someone to vote on his or her behalf at corporate meetings.
PUT OPTION:
A put option is a contract giving the holder the right to sell the underlying security at a specific price during a specified period of time. The exercise price of an option is called the striking price.
PUT:
A bondholder's right to redeem a bond before maturity; a contract that grants the right to sell at a specified price a specified number of shares by a certain date.
Q
QUICK RATIO:
The quick ratio, or acid-test ratio, is used to measure liquidity. It is regarded as an improvement over the current ratio, which includes inventory (usually not very liquid). The quick ratio is stated as current assets less inventory divided by current liabilities. An alternative divides cash, marketable securities and accounts receivable by current liabilities. A company with a high quick ratio may not be using its capital effectively, and its cash-rich position may invite a takeover.
QUOTATION:
The maximum number of shares per order of a particular security that a Market Maker is willing to buy or sell at his or her current price.
R
RANDOM WALK THEORY:
The basic premise of the random walk theory is that forecasting stock prices is a useless exercise. In other words, no matter how hard an investor tries, he will not be able to beat the returns of the general market.
RATING SERVICE:
A company that tracks and rates debt and preferred stock issues. For example, Moody and Standard & Poor.
RATING:
A rating is the result of the review of the creditworthiness of a firm. Rating services such as Moody's, Fitch, and Standard & Poor's evaluate a firm to determine the credit risk of investing in a firm's debt securities. In addition to individual firms, the national statistical ratings organizations (NRSROs) provide risk and credit ratings for mutual funds.
REAL ESTATE INVESTMENT TRUST:
Real Estate Investment Trust (REIT) manage portfolios of real estate oriented investments. The income generated flows through to the investor.
These investments can range from large apartment complexes to shopping centers. Publicly traded REITs give the average investor the diversification benefits provided by real estate assets, professional management of these assets, and a liquid (easily traded) security. They normally provide the investor with a steady stream of income based on the rents and leases on the underlying properties, while also allowing the investor to participate in any capital gains of these properties. However, shortfalls in lease and rent revenue can occur which will reduce yield, and there is no guarantee of capital appreciation.
REAL RATE OF RETURN:
The annual percentage return on an investment adjusted for changes in inflation or deflation.
RECESSION:
A decline in the economy that spans from six to eighteen months.
RECORD DATE:
The date on which a company's records are closed to determine which stockholders are to be sent dividends, proxies, rights, etc.
REDEMPTION:
The word redemption simply means "to sell." If you sell shares of your fund, you are redeeming them.
Shares may be redeemed in an exchange to another fund within the fund company, to a new fund at another company, or to have the proceeds sent directly to you. Redeeming shares (unless in a qualified account or money fund) will normally initiate a taxable event such as a capital gain or loss. When you redeem shares, your fund company will send you a confirmation showing the fund, the date, the price and the amount you sold.
In terms of bonds, redemption refers to repayment of the principal amount of debt security in order to retire the debt. Redemption privileges are spelled out in the bond indenture. Redemption can be made before or at maturity depending upon call privileges.
REFUNDING:
When interest rates decline, a bond issuer may find it profitable to replace a higher coupon issue with a lower coupon issue. If the interest expense savings on a new bond issue covers the issuance expenses and call premium on an existing higher coupon issue, a bond issuer may find it profitable to do a refunding. Bond investors should be aware of the reinvestment risk they face should an issuer decide to refund. The decline in interest rates that made the refunding profitable to the issuer is unattractive to an investor who would have to reinvest the cash proceeds received from the refunding in this lower interest rate environment.
A bond issuer might also refund an issue to escape restrictive bond covenants. For example, a bond issue with a covenant that prevents the issuer from selling an unwanted asset could be refunded to eliminate the unwanted covenant.
A bond issue's redemption (or call) provision outlines an issuer's right to retire a bond issue prior to maturity. Generally, a bond issue has a period of call protection that bars an issuer from refunding an issue for a number of years after issuance.
The ability of an issuer to call a bond issue limits the bond's price appreciation in a declining interest rate environment. As interest rates fall, the likelihood of the issuer refunding the bond issue increases. This puts a cap on a bond's price appreciation to that issue's call price. Investors will be unwilling to pay more than this price, since the issuer is obligated only to pay bondholders the call price if it decides to do a refunding.
Refunding is a somewhat different process for municipal issuers, although the motivation to refund and the consequences of the refunding for the investor are similar. When a municipal issuer refunds, it uses the proceeds of the refunding issue to purchase government securities. These securities are deposited in a bank. An escrow agreement is signed and the bank ensures that the securities on deposit, along with their earnings, are used to pay the interest and principal on the outstanding issue. The municipality winds up with two outstanding issues, one issue that is pre-refunded and one that is the refunding issue.
REGRESSIVE TAX:
A tax that takes a larger percentage of the income of low-income people than of high-income people.
REGULATION T:
A rule of the Federal Reserve Board that governs the extension of credit by broker/dealers to customers to purchase and carry securities.
REIT:
Real Estate Investment Trusts (REITs) manage portfolios of real estate oriented investments. The income generated flows through to the investor.
These investments can range from large apartment complexes to shopping centers. Publicly traded REITs give the average investor the diversification benefits provided by real estate assets, professional management of these assets, and a liquid (easily traded) security. They normally provide the investor with a steady stream of income based on the rents and leases on the underlying properties, while also allowing the investor to participate in any capital gains of these properties. However, shortfalls in lease and rent revenue can occur which will reduce yield, and there is no guarantee of capital appreciation.
RELATIVE STRENGTH:
Relative strength describes a tool of technical analysis that helps an investor understand the recent strength or "momentum" of a security being analyzed. The strength of the security can be viewed in relation to other securities or indexes such as the S&P 500, or in relation to its own price activity. The technical indictor that describes this is a relative strength index or "RSI."
An traditional RSI indicator is also called the Well-Wilder RSI after its two co-founders. It is calculated by examining the up and down price activity of a specific security over a specific time period. Short-term RSIs are calculated between 5 and 15 days while long-term RSIs may range from 50 to 100 days.
The RSI index used in Personal Wealth ranges from 0 to 100. An RSI of 0 indicates a significantly over-sold condition. When a security is over-sold it means it has dropped in price too far, too fast and is often a sign or a near-term move higher. Typical over-sold conditions start near the 25 level. An RSI of 100 suggests an significantly over-bought condition. An over-bought condition is when the security has gone up rapidly. It is often a sign that a downturn in price is expected. Typically over-bought conditions occur near the 75 level. A "Neutral" RSI indicates that the security is neither over-bought or over-sold.
REPURCHASE AGREEMENT:
Repurchase agreements, or repos, are short-term (usually overnight) loans. In a repurchase agreement, a security is sold with the seller agreeing to repurchase the security at a pre-specified date and price. In effect, a repurchase agreement is a collateralized loan, the security being the collateral. The difference between the sale price and the repurchase price is the investor's return.
RETAINED EARNINGS:
Retained earnings are a corporation's net profits that have been reinvested in its business following the payment of dividends.
RETURN ON ASSETS:
Return on assets (ROA) is net income divided by average total assets. Average total assets is calculated by adding total assets at the beginning of the year to total assets at the end of the year and dividing by 2. ROA can vary widely among companies.
RETURN:
The return is the profit on a securities or capital investment, usually expressed as an annual percentage rate.
REVENUE BOND:
A reverse stock split is a decrease in the number of a corporation's outstanding shares, usually done by management to increase the shares' market value and attract more investors. An investor holding 1000 shares of a $2 stock would have 200 shares of a $10 stock following a 1-for-5 split; after the split, his percentage of equity in the company remains the same.
REVERSE STOCK SPLIT:
A reverse stock split is a decrease in the number of a corporation's outstanding shares, usually done by management to increase the shares' market value and attract more investors. An investor holding 1000 shares of a $2 stock would have 200 shares of a $10 stock following a 1-for-5 split; after the split, his percentage of equity in the company remains the same.
RIGHT:
A privilege allowing existing shareholders in a company to buy shares of a new issue of common stock before it is offered to the public
RISK:
Risk is the financial uncertainty that the actual return on an investment will be different from the expected return. Factors of risk that can affect an investment include inflation or deflation, currency exchange rates, liquidity default by borrower, and interest rate fluctuation.
As a measure used in analyzing a particular stock, risk rates the volatility of the stock's price over the past year.
ROE:
Return on equity (ROE) is net income divided by average common equity. Average common equity is calculated by adding common equity at the beginning of the year to common equity at the end of the year and dividing by 2. ROE can vary widely among companies. For example, Eastman Kodak (EK) had an ROE of only about 8% for 1997, while IBM (IBM) weighed in at about 31%. As a Stock Search Criteria entry, ROE (Current Year) refers to return on equity for the most recently reported full fiscal year, while ROE (Two Years Ago) refers
ROUND LOT:
The term round lot refers to a trading unit. For instance, on the NYSE the unit of trading, or round lot, is 100 shares. An order for less than 100 shares is referred to as an odd lot. The trading unit for bonds is generally $1000.
S
S&P:
An abbreviation for Standard & Poor's Corporation, which rates stocks and corporate and municipal bonds according to risk profiles and that produces and tracks the S&P indexes.
SEC:
See Securities and Exchange Commission (SEC).
SECONDARY MARKET:
Markets where securities are bought and sold subsequent to original issuance
SECONDARY OFFERING:
A registered offering of a large block of a security that has been previously issued to the public. The blocks being offered may have been held by large investors or institutions, and proceeds of the sale go to those holders, not the issuing company. Also called secondary distribution.
SECTOR FUND:
A sector fund is a mutual fund that concentrates on a single industry, such as natural resources or technology. Sector funds tend to be more volatile than funds that hold a Diversified portfolio of stocks in many industries.
Sector funds offer investors a convenient way to participate in a particular industry. They also provide a degree of diversification within a given industry. A sector fund portfolio may hold from 25 to 100 stocks.
With a sector fund, an investor can participate in an industry without having to determine which individuals stocks are likely to be that group's winners and losers. Ideally, gains from the winners in a sector fund will offset losses from the losers.
Because sector funds concentrate on a single industry, they can be highly volatile. Returns can fluctuate wildly from week to week, even from one year to the next. Sector fund investing requires a high tolerance for risk. Such funds may be suitable for long-term retirement or college tuition savings accounts.
SECURITIES ANALYST:
An individual who does investment research and makes recommendations to buy, sell, or hold. Most analysts specialize in a single industry or business sector.
SECURITIES AND EXCHANGE COMMISSION (SEC):
The federal agency created by the Securities Exchange Act of 1934 to administer that act and the Securities Act of 1933. The statutes administered by the SEC are designed to promote full public disclosure and protect the investing public against fraudulent and manipulative practices in the securities markets. Generally, most issues of securities offered in interstate commerce or through the mails must be registered with the SEC.
SECURITIES INVESTOR PROTECTION CORPORATION:
The Securities Investor Protection Corp. the nonprofit corporation which insures customer securities and cash in accounts of member brokerage firms. Customer accounts are insured up to $500,000 including a maximum $100,000 in cash.
SETTLEMENT DATE:
Settlement date refers to the date when a transaction must be cleared, or paid for. Most transactions are done on a "regular-way" basis. This means the transaction must be settled three business days from the trade date.
SHORT INTEREST:
Short interest refers to the number of shares of a stock that have been sold short but have not yet been covered. Short interest compilations are followed because the short interest represents dormant demand for a stock that may come to life if short sellers must cover their positions due to a marked rise in the stock's price. On the other side of the coin, the higher the short interest in a stock, the more negative investors are about the stock or the company's future earnings potential.
SHORT SALE: 
For the investors who think a stock is overvalued, or would like to hedge a long stock position, short selling allows them to profit from a falling stock price. A short sale entails the sale of a security that has been borrowed by the investor. The seller has an obligation to replace these borrowed shares at a future date. If the stock price falls, the short seller will profit by replacing the borrowed shares at a lower cost.
SINKING FUND:
A sinking fund is a segregated fund required by provisions allowing for the company to accumulate money annually for the retirement of portions of a bond issue.
SIPC:
See Securities Investor Protection Corporation.
SPECIALIST:
A member of a stock exchange through which all trades in a given security pass.
SPREAD:
The difference between the bid price and the ask price for a security or yield and is known as the "spread." The term also represents the difference between the public offering price of a new issue and the proceeds the issuer receives.
STANDARD & POOR'S 500 INDEX:
A company well known for its rating of stocks and bonds according to investment risk (the Standard & Poor's Rating) and for compiling the Standard & Poor's Index-commonly called the Standard & Poor's 500-that tracks 400 industrial stocks, 20 transportation stocks, 40 financial stocks, and 40 public utilities as a measurement indicative of broad changes in the market.
STOCKBROKER:
An individual or firm that charges a commission for buying and selling orders requested by another individual or firm.
STOCK DIVIDEND:
A stock dividend is the payment of a dividend by a corporation through the issuance of shares instead of cash. Each shareholder would receive a pro rata share of the new issue. Corporations use stock dividends to conserve cash for operations. Unlike cash dividends, stock dividends aren't taxed until sold.
STOCKHOLDERS' EQUITY:
An indication of how the firm utilized its reinvested earnings to generate additional earnings.
STOCK QUOTE:
A representation of prices for a stock during a trading day. Stocks are quoted in points, where one point equals $1, and 1/8ths of a point, where 1/8th equals 12.5 cents.
STOCK SPLIT:
The division of outstanding shares of a corporation into a larger number of shares. For example in a 3-for-1 split, each holder of 100 shares before would have 300 shares, although the proportionate equity in the company would remain the same. A reverse split occurs when the company reduces the total number of outstanding shares, but each share is worth more.
STOCK SYMBOL:
A unique four- or five-letter symbol assigned to a NASDAQ security that is used for identifying it on stock tickers, in newspapers, on on-line services, and in automated information retrieval systems. If a fifth letter appears, it identifies the issue as other than a single issue of common or capital stock.
STOP ORDER: 
Also known as a Stop-Loss or Stop-Limit Order, is an order to sell a stock when its price falls to a particular point.
STOP-LIMIT ORDER:
An order placed with a broker to buy or sell at a specified price after a given stop price has been reached.
STOP-LOSS ORDER:
A customer order to a broker that sets the sell price of a stock below the current market price, therefore protecting profits that have already been made or preventing further losses if the stock drops.
SYNDICATE BID:
A group of investment banking firms formed to conduct an underwriting of a new security issue. Also called the managing underwriter or manager, the syndicate manager works with a company to prepare a new stock issue and register it with the Securities and Exchange Commission. The manager often also organizes the syndicate to spread the risk of a new issue.
T
TAXABLE GAIN:
Taxation incurred by the sale or distribution of mutual fund shares.
TECHNICAL ANALYSIS:
A form of evaluating securities through charts that can forecast a potential future activity. The analysts is derived from market activity, such as past prices and volume.
TICK:
A transaction executed at a price lower than the preceding transaction in that security, or a new quote registered at a lower price than the preceding quote in that security. A transaction executed at a price higher than the preceding transaction in that security.
TOTAL DEBT TO TOTAL ASSETS:
Is a measurement of a company's financial risk. The measurement is calculated by dividing debt (short-term & long-term) by total assets.
TRADE:
A transactional agreement that involves the sale and purchase of a security.
TRADE DATE:
The date in which a trade occurs.
TRADING HALT:
The suspension of trading in a NASDAQ security while material news from the issuer is being disseminated. A trading halt generally lasts 30 minutes and gives all investors equal opportunity to evaluate news and make buy, sell, or hold decisions on that basis.
TRADING RANGE:
The volatility between the high and low prices traded during a lapse of time.
TRANSACTION COSTS:
Costs that are accumulated through buying or selling securities.
TREASURY BILL:
Also known as T bill, is a U.S. government debt security with a maturity of less than one year.
TREASURY BOND:
Also known as T bond, is a fixed-interest U.S. government debt security with a maturity of more than ten years.
TREASURY NOTE:
Also known as T note, is a fixed-interest U.S. government debt security with a maturity between one to ten years.
TROUGH:
One of the four stages of the of the business cycle, referred to as the end of a period of decline in the economy.
TWO-SIDED MARKET:
The NASD regulation that Market Makers quote both a bid and ask price for each security in which they make a market and to execute orders at those prices.
U
UNDERWRITING:
An investment banker who assumes the risk of bringing a new securities issue to market. The underwriter will buy the issue from the issuer and guarantee sale of a certain number of shares to investors; this is firm-commitment underwriting. To spread the risk of purchasing the issue, the underwriter often will form a syndicate (underwriting group, purchase group) among other investment firms. If the investment firm is unwilling to buy the issue outright, other underwriting forms may be used.
UNEARNED INCOME:
Is the income originated from investments and not from employment services. For example, saving account and dividends from stock.
V
VALUATION:
The method of estimating the current worth of an asset.
VALUE LINE INDEX:
A representation of 1,700 securities from the New York and American Stock Exchanges and the OTC market. The index's stocks are weighted equally regardless of market price or total market value.
VARIABLE ANNUITY:
A contractual agreement by an insurance company that guarantees a minimum total payment to the annuitant.
VOLUME:
Amount of trading activity, expressed in shares or dollars, experienced by a single security or the entire market within a specified period, usually daily, monthly, or annually.
VOTING RIGHT:
Stockholder's right to vote on issues concerning the corporation. For example, to vote for members of the board of directors.
W
WARRANT:
A certificate issued by a company giving the holder the right to purchase securities at a stipulated price within specific time limits or with no expiration date (perpetual warrant). A warrant is sometimes offered by a company as an inducement to buy.
WILSHIRE 5000 EQUITY INDEX:
Represents the total dollar value of 5,000 equity securities. The 5,000 stocks include all New York Stock Exchange and American Stock Exchange issues and the most active over-the-counter issues.
Y
YIELD:
A yield is either the rate of return on an investment or the amount of interest paid on a bond divided by the price.
YIELD CURVE:
A curve that graphs interest rates at a specific point for all securities having equal risk but different maturity dates.
YIELD TO MATURITY:
The expected rate of return on a bond at the end of the maturity date.
Z
ZERO-COUPON BOND:
A bond traded at a deep discount from face value. The debt security pays no interest and may be redeemed at maturity for its full face value.