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52-week High

The highest price a security reaches over the most recent 52-week (one-year)
period.

52-week Low

The lowest price a security reaches over the most recent 52-week (one-year)
period.

Annual Report

A description of a company's financial condition and its performance during the


preceding year.

Bear Market

A term used to describe markets when prices are falling.

Blue Chips

Companies with long records of profitable growth, dividend payment, and a


reputation for quality management, products and services. Typically the most highly
valued stocks in the market.

Bond

A security issued by a corporation or a government body. A buyer (the investor) is


lending money to a seller (a corporation or a government body) in return for regular
interest payments and the eventual repayment of the loan.

Broker
A person who buys, sells and gives advice on stocks, bonds, mutual funds and
other securities.

Bull Market

A term used to describe the market when prices are rising.

Base Rate

Base Rate is quoted off a short-term fluctuating rate such as LIBOR or Prime Rate.
LIBOR denotes the London InterBank Offered Rate. Prime is an administered rate
announced by large banks. Hence a base rate may be quoted as LIBOR plus say
1%.

Close

The final price of a security at the end of the trading day.

Commission

The fee paid to a broker for buying or selling securities on a customer's behalf.

Compounding

The effect that interest has on a sum of money when the interest rate is applied to
both the initial sum invested as well as the interest that has already been received
on that sum. For example, if $100 is invested for two years at a 5% interest rate, the
investor will receive $5 the first year and $5.25 the second year. This is because
during the second year the interest rate is applied to the initial investment ($100) as
well as the interest received from the first year ($5). Because of compounding, each
interest payment is greater than the one prior to it; therefore the rate at which an
investment grows increases over time (assuming compounding of interest and a
fixed interest rate).
D

Day High

The highest price a security reaches in its trading market for that day.

Day Low

The lowest price a security reaches in its trading market for that day.

Debt

Money owed that must be repaid.

Diversification

Distributing assets among a variety of securities. By diversifying, you avoid having


all your eggs in one basket, or having all your money in one type of investment that
may not perform well at a particular time.

Dividend

A distribution of cash (or sometimes stock) made by a company to its shareholders.


More established companies tend to pay dividends regularly, while newer
companies usually reinvest extra cash to help their businesses grow.

Dow Jones Industrial Average (DJIA)

An average of 30 selected companies whose movements can be used to indicate


how the overall market is doing. Usually "the stock market is up 30 points" means
that the DJIA has risen 30 points from its previous day's average.

E
Earnings Per Share (EPS)

The amount of company profits attributable to each share of stock.

Equity

The ownership of a portion of a corporation, or company. Shares of stock are


considered equity in a company because they represent the shareholders' partial
ownership of that company.

Federal Reserve System (The Fed)

The Fed is a system of 12 U.S. banks. The duties of The Fed consist of controlling
the amount of money circulating in the economy.

Fixed Income

A fixed amount of money returned from an investment. An example of a fixed


income investment is a bond, because a bond regularly pays a fixed amount of
money (interest) to its holder until maturity.

Foreign Exchange

The exchange of one country's currency for another. All foreign exchange is
determined by a rate of exchange, or a ratio valuing one currency against another.

IPO

Abbreviation for "initial public offering." An IPO is a company's first sale of stock to
the public, also referred to as "going public."
Inflation

The gradual rise in prices of products and services. With a rise in inflation, a dollar
invested or saved today is worth less than the same dollar yesterday. This is why it
is especially troublesome for investors and people living on their fixed savings.

Interest

Interest is an amount charged as a "fee" for lending money. For example, if you
lend $100 to someone at an interest rate of 6%, you would expect $6 to be paid in
"interest" on a regular basis for as long as the loan is in effect.

Interest Rates

The amount of money charged as a fee for lending money or the price of borrowing
money.

Investment

The placement of money in a security, with the hope of receiving back the amount
plus additional value over time.

Liquidity

The ease with which an asset can be sold and turned into cash. A house cannot be
easily redeemed for cash. A blue chip stock is very liquid because there are many
investors who want to buy or sell them.

Market Value
The number of shares outstanding of a particular stock in the stock market
multiplied by the price per share of that stock as of that day's closing price.

Maturity Date

The date when a bond is due to be repaid.

Municipal Bond

Bonds issued by state and local governments in order to fund the building of
schools, bridges, highways and other public projects. Like other bonds, municipal
bonds pay interest until their maturity or redemption date.

Mutual Fund

A company that pools money to invest in stocks, bonds or other securities on behalf
of a group of investors. The fund is managed by a professional investment
manager. Mutual funds offer investors greater diversification because their portfolios
consist of many different securities.

NASDAQ

Abbreviation for National Association of Securities Dealers Automated Quotation


System (also called the OTC, or Over-the-Counter). Stocks on the NASDAQ are not
traded on a securities exchange. They are traded via computer by brokers for their
own accounts.

NYSE

Abbreviation for the New York Stock Exchange. The NYSE is the oldest and largest
auction market for stocks in the United States. It is located on Wall Street in New
York City.
O

Over-the-Counter (OTC)

Stocks not traded on a securities exchange. OTC stocks are traded by brokers for
their own accounts. Many OTC stocks are traded in a market called "NASDAQ,"
which is set up by the National Association of Securities Dealers (NASD).

Portfolio

Holdings of securities by an individual or institution. A portfolio may include stocks,


bonds and other holdings.

Price/Earnings Ratio (P/E Ratio)

A ratio used to gauge the relative value of a security in light of current market
conditions. The ratio is the market price of a particular security divided by its
earnings per share.

Publicly Held

Publicly held companies issue stock to the general public, therefore the public
owns, or holds, a certain percentage of that company.

Recession

When demand in the economy decreases, prices of goods and services also
decrease, resulting in a slowdown of the economy. When this slowdown becomes a
long-term decline, this is known as a depression.

Redemption
Any of the following: repayment of a bond at or before its maturity date; repayment
of a preferred stock; sale of mutual shares to the fund.

Return

The amount of money that you receive as a percentage of an initial investment. For
example, if you initially invested $100 in a one-year investment, and in a year your
investment had grown to $110, the return would be $10, or 10%.

Risk

The chance you take on an investment without knowing its precise outcome.
Usually the investment with the greatest potential return involves the greatest
amount of risk.

Savings

Money set aside so that it can be used later.

Secondary Market

The trading market that exists after a security has been sold to the public by an
issuer. The NYSE and NASDAQ are examples of secondary markets. Individual
investors deal primarily in the secondary market.

Securities and Exchange Commission (SEC)

The regulatory body that oversees the activity of U.S. securities markets and many
of the participants in these markets. The SEC makes rules governing the markets
and these participants, and also enforces the securities laws when they are broken.

Securities

Instruments of investment. Examples of the most widely known securities are stocks
and bonds.
Shareholder

Someone who owns stock in a particular company is referred to as a shareholder of


that company.

Shares Outstanding

The number of shares of a particular stock that are currently being traded in the
stock market.

Stock Exchanges

The auction markets where stocks are bought and sold by broker/dealers for other
people's accounts. A well-known stock exchange, the New York Stock Exchange
(NYSE), provides a market for the buying and selling of stocks. NASDAQ, on the
other hand, is not a stock exchange because it is not an auction market. NASDAQ
stocks are dealt "Over-the-Counter" by brokers.

Stock Index

A collection of stocks whose value is a benchmark for the overall movement of a


particular type of stock.

Stock Quote

The price of a stock at which a broker is willing to buy or sell a specific number of
shares.

Stocks

Ownership shares in a corporation. Stockholders share a portion of the profit the


company may make, as well as a portion of the loss a company may take. If the
company grows, the stockholder may benefit from the rise in the company's stock
price.
U

U.S. Government Securities

Investment instruments of United States Government debt. U.S. Government


securities are thought to be the safest investment because they are backed by the
credit of the U.S. Government itself. This means that government securities are
guaranteed by the U.S. Treasury.

Volatility

The up-and-down movement of a security's price over time. The greater the
volatility, the greater the chance of a profit or risk of a loss in a short period of time.

Volume

The amount of each security traded in a given period of time. For example, if the
volume of XYZ stock was 10,000 yesterday, that means that 10,000 shares of XYZ
stock were traded. Broader volumes, such as the volume of all the stocks traded on
the New York Stock Exchange, can be used to indicate overall market activity.

Yield

Also known as return. The dividends or interest paid by a company expressed as a


percentage of the current price. A stock with a current market value of $40 a share
paying dividends at the rate of $3.20 is said to yield 8% ($3.20/$40).