Stocks and Bonds Terms

High Yield/Junk Bonds

A high paying bond with a lower credit rating than investment-grade corporate bonds, Treasury bonds and municipal bonds. Because of the higher risk of default, these bonds pay a higher yield than investment grade bonds.

Brokerage

A intermediary between buyers and sellers that facilitates transactions.

Treasury Notes

A marketable U.S. government debt security with a fixed interest rate and a maturity between one and 10 years.

Treasury Bonds

A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. They make interest payments semi-annually and the income that holders receive is only taxed at the federal level.

Duration

A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates.

Price/Earnings Ratio

A ratio for valuing a company that measures its current share price relative to its per-share earnings.

Asset

A resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide future benefits.

Over The Counter (OTC)

A security traded in some context other that on a formal exchange, i.e a dealer network.

Market Maker

A broker-dealer firm that accepts the risk of holding a certain number of shares of a particular security in order to facilitate trading in that security.

Bonds

A debt investment in which an investor loans money to an entity (typically corporate or governmental) which borrows the funds for a defined period of time at a variable or fixed interest rate.

Corporate Bonds

A debt security issued by a corporation and sold to investors. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations.

Municipile Bond

A debt security issued by a state, municipality or county to finance its capital expenditures.

Dividend

A distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. Dividends can be issued as cash payments, as shares of stock, or other property.

Dividend Yield

A financial ratio that indicates how much a company pays out in dividends each year relative to its share price. It is represented as a percentage and can be calculated by dividing the dollar value of dividends paid in a given year per share of stock held by the dollar value of one share of stock.

NASDAQ

A global electronic marketplace for buying and selling securities, as well as the benchmark index for U.S. technology stocks.

Board of Directors

A group of individuals that are elected as representatives of the shareholders to establish policies designed to maximize earnings.

Voting Rights

The right of a stockholder to vote on matters of corporate policy and who will make up the board of directors. This often involves decisions on issuing securities, initiating corporate actions and making substantial changes in the corporation's operations.

Yield

The income return on an investment. This refers to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment's cost, its current market value or its face value.

Face Value

The nominal value or dollar value of a security stated by the issuer. For stocks, it is the original cost of the stock shown on the certificate. For bonds, it is the amount paid to the holder at maturity (generally $1,000). Also known as "par value" or simply "par."

Maturity

The period of time for which a financial instrument remains outstanding. Maturity refers to a finite time period at the end of which the financial instrument will cease to exist and the principal is repaid with interest.

Treasury Bills (T-Bills)

A short-term debt obligation backed by the U.S. government with a maturity of less than one year. They are sold in denominations of $1,000 up to a maximum purchase of $5 million and commonly have maturities of one month (four weeks), three months (13 weeks) or six months (26 weeks).

New York Stock Exchange

A stock exchange on Wall Street in NYC, the largest equity exchange in the world.

Ticker Symbol

A ticker symbol is an abbreviation used to uniquely identify publicly traded shares of a particular stock on a particular stock market.

Stock

A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.

Preferred Stock

A type of stock that does not allow for voting , but has a higher claim on assets and earnings.

Common Stock

A type of stock that entitles the holder to voting rights and receive dividends.

Mutual Fund

An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.

Bid

An offer made by an investor, a trader or a dealer to buy a security. It will stipulate both the price at which the buyer is willing to purchase the security and the quantity to be purchased.

Earnings Announcement

An official public statement of a company's profitability for a specific time period, typically a quarter or a year.

Volume

In the context of a single stock trading on a stock exchange, the volume is commonly reported as the number of shares that changed hands during a given day. The average volume of a security over a longer period of time is the total amount traded in that period, divided by the length of the period.

Earnings Guidance

Information that a company provides as an indication or estimate of its future earnings. Guidance is an "expected results" issue from a company to shareholders and market watchers as to how they envision a future period turning out.

Shareholders

People who own stock in a company.

Shares outstanding

Refers to a company's stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company's officers and insiders.

Earnings

The amount of profit that a company produces during a specific period, which is usually defined as a quarter (three calendar months) or a year. Usually refers to after-tax net income.

Discount

The condition of the price of a bond that is lower than par. It equals the difference between the price paid for a security and the security's par value.

Bid/Ask Spread

The difference between the bid and the ask price of a security or asset.

Premium

The difference between the higher price paid for a fixed-income security and the security's face amount at issue.

Default Risk

The event in which companies or individuals will be unable to make the required payments on their debt obligations. Lenders and investors are exposed to this in virtually all forms of credit extensions. To mitigate the impact of this, lenders often charge rates of return that correspond the debtor's level of default risk. The higher the risk, the higher the required return, and vice versa.

Initial Public Offering

The first time a stock is able to be publically traded.

Stock Price

The highest amount someone is willing to pay for the stock, or the lowest amount that it can be bought for.

Expectation Theory

The hypothesis that long-term interest rates contain a prediction of future short-term interest rates.

Ask

The price a seller is willing to accept for a security, also known as the offer price.

Risk Free Rate

The theoretical rate of return of an investment with zero risk.

Market Capitalization

The total dollar market value of all of a company's outstanding shares. It is calculated by multiplying a company's shares outstanding by the current market price of one share.