Personal Finance Chapter 12 and 13

contingent deferred sales load

A 1 to 5 percent charge that shareholders pay when they sell shares in a mutual fund.

account executive

A licensed individual who buys or sells securities for clients; also called a stockbroker.

turnover ratio

A ratio that measures the percentage of a fund's holdings that have changed or "been replaced" during a 12-month period of time.

reinvestment plan

A service provided by an investment company in which income dividends and capital gain distributions are automatically reinvested to purchase additional shares of the fund

total return

a calculation that includes the yearly dividend amount as well as any increase or decrease in the original purchase price of the investment.

earnings per share

a corporation's earnings divided by the number of outstanding shares of a firm's common stock

dividend

a distribution of money, stock, or other property that a corporation pays to stockholders

12b-1 fee

a fee that an investment company levies to defray the costs of advertising and marketing a mutual fund

investment bank

a financial firm that assists corporations in raising funds, usually by helping to sell new security issues

Exchange Traded Fund (ETF)

a fund that invests in the stocks or other securities contained in a specific stock or securities index, and whose shares are traded on a securities exchange or over the counter

family of funds

a group of mutual funds managed by one investment company

proxy

a legal form that lists the issues to be decided at a stockholders' meeting and requests that stockholders transfer their voting rights to some individual or individuals

dollar cost averaging

a long-term technique used by investors who purchase an equal dollar amount of the same stock at equal intervals

secondary market

a market for existing financial securities that are currently traded among investors

primary market

a market in which an investor purchases financial securities, via an investment bank or other representative, from the issuer of those securities

securities exchange

a marketplace where brokers who represent investors meet to buy and sell securities

beta

a measure reported in many financial publications that compares the volatility associated with a specific stock issue with the volatility of the Standard & Poor's 500 stock index

load funds

a mutual fund in which investors pay a commission every time they purchase shares

no-load fund

a mutual fund in which the individual investor pays no sales charge

open-end fund

a mutual fund whose shares are issued and redeemed by the investment company at the request of investors

closed-end fund

a mutual fund whose shares are issued by an investment company only when the fund is organized

over the counter (OTC) market

a network of dealers who buy and sell the stocks of corporations that are not listed on a securities exchange

dividend reinvestment plan

a plan that allows current stockholders the option to reinvest or use their cash dividends to purchase stock of the corporation

direct investment plan

a plan that allows stockholders to purchase stock directly from a corporation without having to use an account executive or a brokerage firm

stock split

a procedure in which the shares of stock owned by existing stockholders are divided into a larger number of shares

limit order

a request to buy or sell a stock at a specified price

market order

a request to buy or sell a stock at the current market value

stock market bubble

a situation in which stocks are trading at prices above their actual worth

margin

a speculative technique whereby an investor borrows part of the money needed to buy a particular stock

preferred stock

a type of stock that gives the owner the advantage of receiving cash dividends before common stockholders receive cash dividends

Nasdaq

an electronic marketplace for stocks issued by approximately 3,000 different companies

stop loss order

an order to sell a particular stock at the next available opportunity after its market price reaches a specified amount

specialist

buys or sells a particular stock in an effort to maintain an orderly market

book value

determined by deducting all liabilities from the corporation's assets and dividing the remainder by the number of outstanding shares of common stock

churning

excessive buying and selling of securities to generate commissions

common stock

is the most basic form of ownership for a corporation. Corporations issue common stock to finance their business start-up costs and help pay for expansion and their ongoing business activities. Corporate managers prefer selling common stock as a method of financing for several reasons.

equity financing

money received from the sale of shares of ownership in a business

Initial Public Offering (IPO)

occurs when a corporation sells stock to the general public for the first time

mutual fund

pools the money of many investors - its shareholders - to invest in a variety of securities

selling short

selling stock that has been borrowed from a brokerage firm and must be replaced at a later date

expense ratio

the amount that investors pay for all of a mutual fund's management fees and operating costs

dividend yield

the annual dividend amount divided by the stock's current price per share

record date

the date on which a stockholder must be registered on the corporation's books in order to receive dividend payments

income dividends

the earnings a fund pays to shareholders from its dividend and interest income

Net Asset Value (NAV)

the market value of the securities contained in the fund's portfolio minus the fund's liabilities divided by the number of share outstanding

capital gain distributions

the payments made to a fund's shareholders that result from the sale of securities in the fund's portfolio

Price/Earnings (P/E) Ratio

the price of a share of stock divided by the corporation's earnings per share of stock

portfolio construction

the process of choosing different types of stocks, bonds, funds, and other investment alternatives to obtain larger returns while reducing risk.

option

the right-but not the obligation-to buy or sell a stock at a predetermined price during a specified period of time.