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135 Cards in this Set

  • Front
  • Back
An increase in the principal value of an investment independent of any income the investment generated.
The presence of a riskless profit.
Arbitrage Pricing Theory (APT)
A multifactor asset pricing model proposed by Stephen Ross in 1976 based on the assumption that the market return is determined by a number of distinct factors as opposed to a single measure of market risk.
ask price
The lowest price at which anyone will currently sell a particular stock; also called the OFFER PRICE.
ask size
The quantity of shares available for sale at the current ask.
assessment bond
A bond typically used to pay for a project that benefits a specific group of people, with the people directly and routinely benefiting from this improvement being assessed a higher property tax.
asset allocation
The relative distribution of funds across asset classes; in particular, the proportion of funds invested in the stock, bonds, and cash asset classes.
asset class
A broad category of investments such as common stock, bonds, cash, international equity, real estate, etc.
asset segregation
The tendency to look at investment decisions individually rather than as part of a group.
autocorrelation test
A test to investigate whether or not security returns are serially related through time.
automatic monthly investment plan
A mutual fund shareholder's option to buy shares on a regular basis, paying for them with an automatic debit from the accountholder's bank account.
automatic reinvestment plan
The mutual fund shareholder's option to use any income or capital gains from the investment to buy additional shares in the fund.
availability heuristic
The contention that things easier to remember occur more frequently than they actually do.
average cost method
A method for accounting for the taxable gain or loss on a mutual fund investment by considering the average share cost rather than the actual cost of specific shares acquired at different points in time.
away from the market
The characteristic of a limit order with a limit price far removed from the prevailing market price.
back-end load
A sales charge levied when you sell mutual fund shares; it is also called a contingent deferred sales charge.
Research that tests a hypothesis using past data rather than future data from outside the period used to develop the hypothesis.
balloon loan
A debt issue with little or no periodic amortization of the debt, but with the bulk of principal due at the end of the loan term; it is common in commercial bank lending.
bank immunization
A method of interest rate management used by a financial institution to protect from losses due to adverse interest rate movements.
barbell strategy
A classic bond portfolio strategy with the heaviest investment in near- and long-term maturities, and least in intermediate-term securities.
bar chart
A market data chart showing the periodic high, low, and closing price of security; a vertical line connects the period's high and low prices, and a cross mark indicates the price at the close of the perios.
The difference between a futures price and the cash price for the underlying commodity.
basis convergence
The phenomenon with futures contracts whereby basis declines as delivery date approaches.
basis point
one hundredth of one percent
bearer bond
A bond that does not have the name of the bondholder printed on it; the bondholder clips and presents paper coupons to receive interest as it is earned. It is also called a coupon bond.
behavioral finance
A field of study intergrating psychology into the investment process to determine how investors make decisions and how they choose between alternatives.
A measure of systematic risk or an asset's relative sensitivity to changes in the value of the market portfolio.
biased expectations
Inferences from personal experience which are then applied to situations beyond that knowledge base.
bid price
The highest price anyone will currently pay for a particular stock.
bid size
The quantity of shares commited to purchase at the current bid price.
big board
New York Stock Exchange
Black-Scholes Option Pricing Model
A mathematical formulation of the equilibrium value of a call option.
block trade
An order to buy or sell 10000 shares or more.
blue chip stock
An imprecise often associated with a common stock in a company with a long, uninterrupted history of dividend payments.
blue sky law
A state law requiring the registration of securities to be offered for sale within state borders. It often functions largely to ensure the suitability of investors for certain proposed investments.
book entry form
A form of security ownership where there is no physical document reflecting the ownership interest. The security issuer maintains ownership records on its accounting records but issues no stock or bond certificates.
book value
Equivalent to equity per share or net asset value. Book value per share is an accounting concept that measures what shareholders would receive if all the firm's liabilities were paid and all its assets could be sold at their balance sheet value.
borrowing portfolio
An efficient portfolio employing borrowed funds.
Brady Bond
An international debt instrument backed by the International Monetary Fund and the World bank designed to help emerging market countries restructure and pay off their foreign obligations.
The charting phenomenon when a stock price pierces either a support level or a resistance level. Breakouts are either bullish (on the upside) or bearish (on the downside).
A representative of a member of an exchange whom the public may hire to buy or sell securities on their behalf.
bucket trade
A fictitious trade in which a broker essentially bets against a client by claiming to have made a trade on the customers behalf, but in reality the broker is delaying the trade anticipating that the market will move against the investor.
bullet immunization
An interest rate management technique that seeks to ensure that a specific sum of money will be available at a point (or series of points) in the future.
business risk
The variability in a firm's sales; it is associated with the top of income statement.
busted convertable
A bond whose conversion price is substantially above the current market price of the associated common stock.
buy and hold
The practice of buying common stock shares and with the expectation of keeping them for a long time rather than frequently trading them.
buying power
A measure of how much more can be spent on securities without having to put up any additional cash.
call feature
A feature of a debt security enabling a company to pay off the debt ahead of schedule.
call money rate
The base borrowing rate for margin loans using securities as collateral; also called the broker's call money rate.
call option
A security giving its owner the right to buy a fixed quantity of the underlying asset at a set price within a certain time period.
call premium
Extra compensation paid to a bondholder for the inconvinience of having the bond called.
call protection
A period of time after the issuance of bonds during which the issuer may not call them.
candlestick chart
An enhanced version of a bar chart showing a stock's open, close, high, and low in a modified three-dimensional format.
The maximum allowable interest rate on an adjustable rate morgage.
capital appreciation
A portfolio objective seeking maximum in principal with little concern for the periodic generation of portfolio income.
Capital Asset Pricing Model
A theoretical pricing relationship requiring the expected return on a security to be directly proportional to its beta.
capital gains distribution
The distribution of the net capital gains to mutual fund accountholders at least once during each calendar year, subdivided into short-term gains (those arising from holding periods of a year or less) and long term (all others).
capitalization rate
The shareholder's required rate of return minus the dividend growth rate. Also known as the cap rate.
capitalization weighting
A method of constructing an index; weights components by the size of the company rather than by the value of a share. Share price is multiplied by the number of outstanding shares. It is also called value weighting.
capital market line
The line extending from the riskless rate through the market portfolio on the efficient frontier.
cash account
The default type of brokerage account. When buying securities, the investor must have or deposit cash equal to the full value of the securities purchased.
cash dividend
A partial distribution of corporate earnings paid to shareholders.
Cash earnings
Pro forma earnings. Net income excluding the effects of write-downs or goodwill amortization.
cash flow
The movement of funds into and out of the firm; net income after taxes plus non-cash expenses (like depreciation).
cash matching
A special form of bullet immunization where the portfolio throws off cash precisely when it is required and in the exact amount needed.
Central Registration Depository (CRD)
A database maintained jointly by the National Association of Securities Dealers and state securities commisions containing historical records regarding disciplinary action taken against brokers.
chaos theory
The study of instances where there is systematic behavior amidst apparent randomness.
Chartered Financial Advisor (CFA)
A prestidious credential for those involved in the money management business.
cheapest to deliver
The seller's preferred bond for delivery against a T-bond futures contract because it is the least cost bond eligible for delivery.
Making unnecessary trades in a portfolio in order to generate more commision income.
circuit breaker
A procedure at an exchange that temporarily restricts trading activity as a consequence of large price movements in the market indices.
class of stock
A subcategory of common stock in a particular company. When different classes exist, the most common difference in them is in voting rights, with one class having more votes per share than the other classes.
clean price
The price of a debt security exclusive of any accrued interest.
closed-end investment company
An investment company with a fixed number of shares outstandin.
closely held
Securities owed by persons who, for legal or personal reasons, do not routinely offer the securities for sale.
closing transaction
A trade that terminates an existing position. The expiration of a worthless option is also a closing transaction.
cold calling
The practice of soliciting potential brokerage firm customers over the telephone.
collateral trust bond
A debt instrument backed by securities such as investment assets or the stock of a subsidiary.
collateralized morgage obligation (CMO)
A portfolio of morgages that is subdivided into various securities with varying priority in the receipt of principal and interest payments.
A fee paid to a broker for buying or selling a security for a customer.
common stock
A security reflecting ownership interest in the firm, with a residual claim on the assets of the firm after the bondholders and other creditors.
common stock equivalent
A convertable bond or other security whose price is highly correlated with the value of the associated common stock shares.
compound annual return
An annualized return measure taking into account the time value of money and the fact that performance measurment periods may differ.
The earning of interest on previously earned interest.
confidence index
The ratio of the yield on a high grade bond to the yield on a lower grade bond.
conforming mortgage
A mortgage below a specified maximum value that is eligable for pooling and resale to investors.
A bond with no maturity, paying a level interest rate perpetually.
constant beta
A common stock portfolio rebalancing scheme seeking to maintaing beta near a target level.
constant repayment rate
An assumption with a mortgage pool that is used to estimate the cash flow streams associated with CMOs and mortgage -backed securities.
constant proportion
A common stock portfolio rebalancing scheme in which adjustments are made so as to maintain some relative weighting of the portfolio components as their price changes.
continuous pricing function
A characteristic of the capital markets whereby prices are available moment by moment, thereby enabling investors to get accurate, up-to-date price information.
The unit of trading with commodity and financial futures.
contrary opinion indicator
A technical indicator that prescribes actions opposing those of the marketplace.
conversion price
The par value of a convertible bond divided by its conversion ratio.
conversion ratio
The number of shares a bondholder receives upon excanging a convertable bond for stock.
conversion value
The bond conversion ratio multiplied by the current stock price.
convertible bond
A debt issue which may be excanged for common stock in the company that issued the bond.
convertible mortgage
An adjustable rate mortgage that gives the borrower the option to convert to a fixed rate.
For a given interest rate change, the difference between the actual price change in a bond and that predicted by the duration statistic. It is a measure of the inaccuracy of duration.
correlation matrix
A table showing the parwise correlations between a group of variables.
cost basis
The effective purchase price for tax purposes used when determining capital gains or losses on an investment.
country fund
A closed-end investment company whose portfolio is comprised entirely of securities issued within a particul foreign country.
country risk
The likelihood that a country will be unable or unwilling to meet its foreign excange obligations.
coupon rate
The fixed interest rate that is the basis for the interest repayment from a bond.
A measure of the degree of association between two variables that considers the extent of a relationship in addition to the direction.
To purchase shares so as to close out a short position
covered call
A call option sold as an opening transaction while the writer is simulteniously long an equivalent number of shares of the stock.
crawling stop order
A stop order in which the investor hopes to continually move the stop price up behind a rising stock.
current yield
Anticipated annual income divided by current price.
The entity that actually has phisical custody of a mutual fund's assets.
credit barbell
A bond portfolio conntaining a mix of high grade and low grade securities.
cross trade
Offseting buying and selling activities without reporting the activity to the excange.
The collection of marketmakers in a trading pit.
cyclical stock
Common stock in a corporation whose fortune is directly tied to the state of the overall national economy. Steel companies and industrial chemicals are examples.
daily fluctuation
The daily change in stock price which the Dow Theory postulates are meaningless and contain no useful information.
daily valuation method
A measure of portfolio return from calculation of the exact time-weighted rate of return. Precise but requires determining a value for the portfolio each time any cash flow occurs.
date of declaration
The day the board of directors of a corporation publicly announces a forthcoming dividend.
date of payment
The date when a company will actually pay a previously announced dividend to shareholders.
date of record
The date when a company determines list of shareholders to receive dividends.
day trade
Buying and selling securities on the same day. Such a trade often involves only a single brokerage commision.
A corporate debt back only by the good name of the company.
debit balance
In a marging account, an investor's outstanding indebtedness to the brokerage firm.
default risk
The possibility that a borrower will be unable or unwilling to pay principal and interest as promised; also called credit risk.
defensive stock
Common stock in an industry (such a retail foods or tabacco) that is largely immune to changes in macroeconomy.
delivery month
The specified month for transfer of goods in a futures contract.
The change in option premium expected from a small change in the stock price.
derivative asset
An asset whose value derives from the value of some other asset or from the relationship between several assets. Futures and options are best known derivative assets.
detachable warrant
A warrant that may be sold separately from its accompanying debt issue.
dirty price
The price of a debt security including any accrued interest.
The act of converting a future value into a present value; also a bond whose market price is less than its par value.
discount broker
A brokerage firm that executes trades inexpensively for its clients but provides little investment research or other services.
disposition effect
The tendency to be more likely to sell a winning stock than a losing stock.
distressed debt
A bond with a current yield more than 10 percentage points greater than a Treasury security of comparable term.
diversifiable risk
That portion of a security's total variability that can be eliminated by combining the security in a portfolio with other unrelated securities.
A distribution of corporate earnings to shareholders.