Most Important Definitions
Common Stock – shares of a publicly held corporation, usually includes voting rights. Common
stock has lower priority in event of liquidation than preferred shares.
Dividends – cash or stock paid to shareholders, usually on a quarterly schedule.
Portfolio – a group of stocks, mutual funds, or other securities.
Ticker Symbol – The abbreviation used to uniquely identify publically traded shares of a
particular stock on a particular stock market.
Coupon – (1) The interest rate, expressed as a percent, paid on a bond.
(2) The detachable part of a bearer bond that denotes the amount of interest due, on what date,
and where payment is to be made. Coupons generally are payable semiannually.
Coupon Rate – The stated annual interest rate on a security.
Par Value – The principal amount of a bond. The amount the issuer is expected to pay when the
bond matures.
Premium Bond – A bond with a price above the par value.
Other Definitions
Ask Price – The price you are asked to pay when you buy a stock
Bid Price – The price you’re offered when you’re selling a stock.
Book Value – total shareholder’s equity from balance sheet divided by the number of shares
outstanding.
Bull Market – a period when most stocks are increasing in value.
Discount – the difference between a bond's face value and its current market price.
Dividend Yield – total of 12-month's dividends paid (historical or forecast) divided by the latest
share price.
Earnings per Share (EPS) – after tax 12-month's earnings divided by the number of shares
outstanding.
Fiscal Year – any 12-month period designated by a corporation as their accounting year. Once
set up, a corporation's fiscal year does not change.
Fund Family – a group of mutual funds owned by the same company.
Index – a composite representing the value of a group of stocks.
Initial Public Offering (IPO) – first sale of stock to the public by a corporation.
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Leveraged Buy Out – Take over of a public corporation using borrowed funds.
Load – a sales commission paid when you buy (front-end) or sell (back-end) a mutual fund.
Margin – borrowing funds from your broker to buy stock.
Preferred Stock
Stock that pays a specific dividend before any dividends are paid to common stock holders. A
preferred stock takes precedence over common stock in the event of liquidation. Preferred stock
usually does not carry voting rights.
Prospectus – a document circulated to potential investors prior to an IPO describing a
company’s business plan.
Venture Capitalist – an investor involved in financing a company’s operations before going
public in exchange for an ownership percentage.
Types of Orders to buy securities
Stop Order (stop loss) – order with broker to sell stock at market price when it goes down to
specified (limit) price.
Stop Limit Order – a combination of a stop order and a limit order. The limit order becomes
effective when the stock hits the stop price.
Market Order – order with broker to buy or sell stock at current market price.
Limit Order – order with broker to buy stock at limit price or less, or to sell stock at limit price
or higher.
Good For the Day – buy or sell limit order will expire at close of trading if not executed.
Good til Canceled – buy or sell limit order remains active until you cancel it.
Descriptions of Company Stocks
Large-Cap – company with market capitalization greater than $8 billion
Mid-Cap – company with market capitalization between $2 billion and $7 billion.
Small-Cap – company with market capitalization less than $1 billion.
Growth Stocks – companies with consistent annual earnings and sales growth of at least 15%.
Value Stocks – companies currently out of favor with investors. These companies usually have
low valuation ratios (price/earnings less than the S&P 500, price/sales ratio less than 2,
price/book ratio less than 2).
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About Bonds
APY – Annual Percentage Yield is the effective annual rate of return, taking into account the
effect of compounding interest. It is the annual rate of return for CDs.
Basis Point – One one-hundredth of a percentage point. This is the most common measure of
changes in bond yields.
Call – The action taken to pay the bond principal and interest prior to the stated maturity date.
Call Premium – dollar amount paid as a penalty or premium by an issuer who exercises the
right to redeem securities
Face Amount – The value at maturity of a bond. This is also called par. The principal amount
the bond will pay at maturity.
Junior Security – A security with a claim on a corporation's assets and income that is
subordinate to that of a senior security. For example, common stock is junior to preferred stock,
which is junior to unsecured debt such as debentures, which is junior to secured debt.
Maturity Date – The date when the principal amount of a security becomes due and payable.
Prepayment Risk – The risk that falling interest rates will lead to heavy prepayments of
mortgage or other loans - forcing the investor to reinvest at lower prevailing rates.
Some types of bonds
Asset Backed – Bonds or notes backed by loan paper or accounts receivable originated by
banks, credit card companies, or other providers of credit. Asset-Backed Securities are often
enhanced by a bank letter of credit or insurance coverage.
Bearer Bonds – An instrument that is owned by whoever is in possession of the
certificate. Coupons must be submitted to the registrar for that issue to receive interest
payments.
Registered Bond
A bond whose owner's name is printed on the certificate and is recorded on the books of the
bond issuer. The bond may only be transferred when the bond is endorsed by the registered
owner of the bond.
Revenue Bonds – Revenue bonds are issued to finance projects or enterprises in which the bond
issuers pledge to the bondholders the revenues generated by the financed projects. Revenue
bonds can be used to finance hospitals, water and sewage systems, tunnels, bridges, and
turnpikes. Revenues can come from user fees and tolls and are used to repay the bonds.
Secured Debt – Debt backed by specific assets or revenues of the borrower. In the event of
default, secured lenders can force the sale of such assets to meet their claims.
Serial Bond – A bond issue with stated maturity dates spread over several consecutive years.
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Treasury Bills – A U.S. Government security with a maturity of one year or less. T-Bills are
purchased at a discount to the full face value, and the investor receives the full value when they
mature. The difference or "discount" is the interest earned. T-Bills are issued in denominations of
$10,000 (auction) and $1,000 increments thereafter.
Treasury Bonds – Long-term obligations of the U.S. Government backed debt. that mature in
excess of ten 10 years. Interest is paid semi-annually, and the bonds can be purchased in
minimum denominations of $1,000 or multiples thereof.
Treasury Notes – U.S. Government debt obligations that are available for terms of one to 10
years with a fixed interest rate. Interest is paid twice a year, or semiannually, and the bonds can
be purchased in denominations of $1,000 or multiples thereof.
Zero Coupon – A debt security that doesn't pay interest (a coupon) but is traded at a deep
discount, rendering profit at maturity when the bond is redeemed for its full face value.
Government Bonds – Bonds issued by governments or agencies of governments.
High-Grade Bonds – Top-rated bonds, usually triple-A, that carry relatively little risk of default.
High Yield Bonds – Also called "junk bonds." These bonds are usually rated lower than
BBB/Baa and are considered to have a higher risk of default. The yields are also higher on these
bonds than on investment grade bonds.
Industrial Bonds – Bonds issued by companies in the Industrial sector, which may include
manufacturers of materials, energy, capital goods, consumer durables and non-durables.
Junk Bond – A debt obligation with a rating of BB or lower, generally paying interest above the
return on more highly rated investment grade bonds; sometimes referred to as high-yield bonds.
Commercial Paper – Commercial Paper securities are short term obligations with maturities
ranging from 2 to 270 days, issued by banks, corporations, and other short-term borrowers. Such
instruments are unsecured and usually sold at a discount.
Convertible Bond – A bond containing a provision that permits conversion to the issuer's
common stock at some fixed exchange ratio.
Corporate Bond – Company-issued debt instruments that are considered financial obligations of
a corporation. Corporate bonds can be broken down into three categories; debentures, medium
term notes, and commercial paper. Maturities on corporate bonds can range from three months to
one hundred years, and credit quality of issuers will vary. Generally, corporate bonds are broken
down into four sectors – industrial, financial, transportation, and utility. They can be issued in
both callable and non-callable formats.
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