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90 Cards in this Set

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  • Back
dividend discount model
A mathematical formula for the present value of a growing annuity that is commonly used to value the dividend stream of a common stock.
dividend reinvestment plan
An option many companies provide to their shareholders whereby dividends may be reinvested in additional shares of stock in the firm, often at a discount price.
dividend yield
The ratio of annual cash dividends to the current stock price.
An adjustment factor used to account for stock splits and component replacements in a market index. It ensures that index does not change artificially because of such an event.
dollar cost averaging
An investment technique used widely by individual investors that requires investing a fixed amount on a regular interval into the same security, regardless of current market conditions.
dollar duration
The dollar change in a bond price associated with a small change in interest rates.
An investment alternative shows dominance over another if it offers the same expected return for less risk or if a security has a higher expected return that another security of comparable risk.
Jow Jones 20 Bond Index
A Dow Jones index for the corporate bond market.
Dow Jones Composite
An index containing all 65 stocks in the DJIA, DJTA, and DJUA. also referred to as "65 stocks."
Dow Jones Industrial Average (DJIA)
One of the best known stock market indexes, price weighted with 30 components.
Dow Jones Transportation Average (DJTA)
An index similar to the DJIA except it includes 20 transportation companies.
Dow Theory
A technical analysis theory postulating three components in the movement of stock prices: a primary trend, a secondary trend, and a meaningless daily fluctuations.
The condition when the last inraday price change in a security is down.
dramshop case
A legal dispute in which one person arques that some other party should have not permitted the plaintiff to do something. In finance, the essence of these laws is the notion that brokers have a responsibility to ensure that clients do not do something financially stupid.
dual listing
The characteristic of a security that trades on both national exchange and on one or more of the regional exchanges.
DuPont analysis
Method of analysis of a firm's investment atractiveness by showing the interaction of profitability, efficitn use of assets, and use of leverage.
A measure of interest rate risk.
duration matching
A form of portfolio immunization requiring investing the present value of the cash outflows and getting the duration of the assets purchased equal to the duration of the outflows.
duration to call
A duration calculation based on the assumption that the bond will be called on its first call date.
duration to maturity
A duration calculation based on the assumption that the bond will not be called prior to its scheduled maturity date.
duration to worst
A duration calculation based on the assumption equal to duration to call if the bond trades at a premium or equal to duration to maturity if the bond trades at a discount.
earnings quality
A subjective measure of the growth and variability of corporate earnings from the firm's operations rather than from extraordinary events.
30-Year Treasury
U.S. Treasury debt obligation that has a maturity of 30 years. The 30-year Treasury used to be the bellwether U.S. bond but now most consider the 10-year to be the benchmark.
earnings yield
The reciprocal of the price-earnings ratio, grounded in time value of money relationships.
Earning before interest, taxes, depreciation, and amortization.
economic function
The characteristic of capital markets whereby they facilitate the flow of funds from savers to borrowers (with fixed income securities) or from sources to uses (with equity).
economic risk
With international investments, a measure of a country's ability to pay its foreing obligations.
Acronym for the U.S. government's electronic data gathering, analysis, and retrieval. This is a mandatory electronic system corporations must use for the filing of SEC reports.
effective duration
A measure of price sensitivity calculated from actual bond prices resulting from slightly different market interest rates.
effective exercise price
The stated exercise price divided by the conversion ratio; amount needed to buy one share of stock
efficient frontier
The set of portfolios that are not dominated by any other portfolio.
Efficient Market Hypothesis(EMH)
The single most important paradigm in finance, proposing that market prices are in fact fair because of the large number of market participants.
EIC analysis
The traditional approach to fundamental security analysis in which the analyst first considers the overall economy, then investigates industries expected to do well in the coming economic enviroment, and finally identifies the best companies in promising industries.
emerging market
An impricise term describing a country lacking a mature stock market or exchange mechanism, generally with low per capita GNP.
empirical finance
The study of financial data in order to infer relationships.
empirical research
The study of pricing relationships using actual market data rather than mathematical models.
equal weighting
A method of creating an index that is theoretically preferable to price weighting.
equipment trust certificate
A debt issue providing physical assets, such as a fleet of trucks or airplane, as collateral for a loan.
equity interest
Partial ownership of the assets of a corporation.
equity risk premium
The anticipated return advantage to common stock over fixed income securities.
equity security
Evidence of an ownership interest in a corporation.
European option
An option that may be exercised only at its expiration.
event study
A research methodology in which a phenomenon occuring at a known point in time, such as a stock split or the announcement of corporate earnings, is designated as time zero, thereby enabling events differing in calendar time to be jointly analized in event time; it is frequently used in tests of the semistrong form of market efficiency.
ex-dividend date
Two business days prior to the date of record for a dividend.
excess return
The difference between a realized return and the riskless rate; also the return on a security in excess of that anticipated by financial theory.
exchangeable bond
Similar to a convertable bond, except this debt issue may be exchanged for shares in a different firm.
exchange traded fund (ETF)
Closed-end index funds with low expense ratios; you pay a commision to buy or sell.
exercise price
The price at which a warrant holder may buy shares, or an option may buy (with a call) or sell (with a put) shares; also called the strike price.
expected return
The anticipated return on an investment, generally based on the perceived risk of the investment. While expected return is an ex-ante concept, it is often empirically estimated based on historical data.
expense ratio
A mutual fund's total expenses as a percentage of the fund's assets.
expiration date
The end of the specified term of an option contract.
fair pricing function
The characteristic of a well-developed capital market enabling investors to trust the market prices prevailing on the exchanges.
fallen angel
A bond that was origingally with an investment rate but has been downgraded to a junk bond rating.
false growth
The increase in earnings per share that occurs anytime a firm acquires another firm with a P/E ratio lower than its own via an exchange of shares.
Fannie Mae
The Federal National Mortgage Association, an organization that facilitates the efficient flow of capital in the mortgage market.
fear of regret
Avoidance of action due to fear on making a mistake.
Federal Deposit Insuarance Corporation (FDIC)
A government agency that protect depositors against bank failure or fraud.
Fibonacci numbers
A sequence of numbers in which after initial pair of one, each succeding number just a sum of the previous two.
filter rule
A trading rule prescribing buying shares after they rise in value by x%, shorting them after they fall x% from a subsequent high, and coverning the short when they rise x% from a subsequent low.
financial asset
An asset for which there is a corresponding liability on different balance sheet.
financial risk
Associated with the bottom of the income statement. It results from variability of earnings and is closely associated with the firm's use of financial leverage.
First in, First out (FIFO)
A cost method with mutual fund investments assuming that in any sale the shares sold are those that have been owned the longest.
fixed income security
An asset such as a bond or preferred preffered stock that provides a relatively constant cash flow stream.
fixed rate mortgage
A real estate loan in which the interest rate is set at the time of origination and remains unchanged through the life of the loan.
An investor who buys an IPO and sells it soon after the initial offering.
A minimal level below which the interest rate on a variable rate loan may not fall.
foreign exchange risk
The chance of loss due to adverse changes in interest rates.
form 144
This is SEC-required document corporate insiders must file to express an intent to sell some of their personal shares in their company.
forward split
A stock split in which shareholders end up with a greater number of shares than before the split; also called a regular way or direct split.
fourth market
Direct trades between large institutional investors.
The attempt to assign a situation with an implied sense of gain or loss.
Freddie Mac
The Federal Home loan mortgage corporation, organized in 1970, in order to provide liquidity to the conventional mortgage market.
free cash flow
A firm's cash flow minus the amount required for necessary capital expenditures and debt repayment.
front-end load
The load fee (or sales charge) paid at the time of purchasing of mutual fund shares.
FT-SE 100
The Financial Times Stock Exchange (London) index based on 100 UK stocks with the largest capitalization.
full faith and credit issue
Debt issued by state and local governments without specific assets pledged against it; also called general obligation bond.
full service broker
A brokerage firm where individual brokers provide personalized service and are expected to be familiar with their clients, their needs, and their individual circumstances. A full service broker provides substantial investment research services and portfolio advice.
fully modified pass-through
A mortgage pass-through security in which the government agency guarantees the timely payment of both interest and principal.
fund family
A collection of mutual funds covering many different investment objectives, but all managed by the same company.
fundamental analyst
A security analyst who believes that securities are priced in rational manner based on a macroeconomic information, industry news, and the firm's financial statements.
A characteristic of options providing that, for a given company, all options of the same type with the same expiration and striking price are identical, regardless of when they were written or their initial cost.
futures contract
A promise to pay for (if long) or to deliver (if short) a quantity of a standardized commodity to a designated delivery point during a certain month.
gambler's fellacy
The mistaken belief that the pattern in a series of recent occurences influences the next outcome.
geometric mean
The nth root of the product of n variables.
Ginnie Mae
The Government National Mortgage Association, a government agency designed to provide liquidity for Veteran's Administration and Farmers' home Administration mortgages.
Global Depository Receipt (GDR)
A security analogous to an American Depository Receipt but issued in the Euromarket and backed by Euromarket depositories rather than by a specific bank.
good faith deposit
A performance bond required when a futures contract is initiated to show evidence the hedger or speculator can meet their obligation should the price of the underlying asset move adversly.
graduated payment mortgage
A mortgage whose periodic payment increases through time according to a present schedule.
Greenspan model
A heuristic used as one means of estimating the over or undervaluation of the broad market: the 10-year Treasury yield - S&P earnings yield.
Growth at a Reasonable Price (GARP)
A technique, advocated by Peter Lynch, of combining elements of both growth and value investing; employs the PEG ratio.