Investment Glossary

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Bear Market - A period when stock prices are falling.

Bond - An interest-bearing debt issued by a business or by the government that promises to pay the purchaser a specific amount on a set date.

Bull Market - A period when stock prices are rising.

Business Risk - Investment risk associated with changes in the issuing firm’s revenues and stability.

Capital Gain - The profits that result when an investment is sold for more than its cost.

Capital Losses - The losses that result when an investment is sold for less than its purchase price.

Commercial Paper - Unsecured short-term corporate debts. These promissory notes sell at a discount and are redeemed for the full amount of principal at the end of a stated maturity period.

Commission - The fee a broker collects from buying or selling something, whether it be a house or shares of stock.

Common Stock - Share of ownership in a company. Common stock has more risk than preferred stock, but also offers potentially more profit.

Debt - An IOU; an obligation for payment.

Discount - A deduction on an advance payment for a bill or note not yet due. The discount is a form of interest.

Dividend - Money paid by a corporation to its shareholders, the owners of its stock.

Equity - A share of ownership.

Holding Peroid - The length of time you own a piece of property, such as mutual fund shares or real estate.

Inflation - An increase in the prices of goods and services.

Interest - Payments a borrower makes to a lender for the use of money.

Interest Rate - The amount of annual interest to be paid, stated as a percentage of the principal.

Interest Rate Risk - Risk associated with fixed-rate investments whose returns are tied to current interest rates.

Intermediate-Term Bond - Bond with a maturity length of four to ten years.

Investment Instrument - A formal legal document such as a bond, stock or deed.

Liquid - An investment easily converted into cash. Examples include money market funds and checking and savings accounts.

Long-Term Bond - Bond with a maturity length of over ten years.

Market Risk - Risk that an investment will follow the general trend of the stock market as a whole.

Market-Based Interest Rate - An interest rate that is adjusted according to the current prime lending rate.

Maturity - When principal is repaid from a bond. The bond matures over a specified length of time, during which the loan is repaid; i.e., a ten-year bond bought in January 1993 matures in January 2003.

Net Asset Value - The price of one share of a mutual fund. It is equal to the fund’s total market value less its liabilities, divided by the number of its outstanding shares.

Preferred Stock - A stock which pays a specified annual dividend. It has preference over common stock in the payment of dividends and in the distribution of assets if the company is liquidated.

Price-Earnings Ratio - Market price per share divided by net earnings per share in the preceding year. A gauge of whether a stock is priced too low, too high or about right.

Prime Rate - The interest rate that banks charge their best customers for loans. This preferential rate may not be available to the ordinary borrower.

Principal - The cash value placed in an investment, as opposed to the interest or dividends the investment pays out.

Prospectus - A detailed printed statement describing an investment offered to the public. All prospective purchasers must receive a copy before investing, as required by law.

Purchasing Power Risk - The risk that an investment will lose purchasing power due to inflation.

Short-Term Bond - Bond with a maturity length of three years or less.

Total Return - The interest or dividend payout plus the change in value.

Yield - Interest or dividend payout divided by its current price.