CEF 251 Exam 2 (ch. 11-21)
short selling (shorting)
a process by which investors sell a stock that they do not own
margin call
a request from a brokerage firm for the investor to increase the cash in the account in order to bring the margin back up to the minimum level
Employee Stock Ownership Plan (ESOP)
a retirement plan in which the employer contributes some of its own stock to the employee's retirement account
Traditional Individual Retirement Account (IRA)
a retirement plan that enables individuals to invest $5,000 per year ($10,000 per year for married couples)
deductible
a set dollar amount that you are responsible for paying before any coverage is provided by your insurer
lump-sum settlement
a single payment of all the benefits owed to a beneficiary under a life insurance policy
letter of last instruction
a supplement to a will that can describe your preferences regarding funeral arrangements and indicate where you have stored any key financial documents
umbrella personal liability policy
a supplement to auto and homeowner's insurance that provides additional personal liability coverage
standard family trust (credit-shelter trust)
a trust established for children in a family
living trust
a trust in which you assign the management of your assets to a trustee while you are living
variable annuity
annuity in which the return is based on the performance of the selected investment vehicles
fixed annuity
annuity that provides a specified return on your investment so you know how much you will be receiving at a future point in time
traditional marital share will
a will suitable for larger estates that distributes half of the estate to the spouse and the other half to any children or to a trust
simple will
a will suitable for smaller estates that specifies that the entire estate be distributed to the person's spouse
Flexible Spending Account (FSA)
account established by the employer for the employee to use pre-tax income to pay for medical expenses
Health Savings Account (HSA)
account that shelters income from taxes and that can be used to pay health care expenses
estate
assets of a deceased person after all debts are paid
personal property floater
extension of the homeowner's insurance policy that allows you to itemize your valuables
stock exchanges
facilities that allow investors to purchase or sell existing stocks
common stock
financial instrument used by a firm to raise funds; represents partial ownership in the firm
Balance Sheet
financial statement that indicates a firm's sources of funds and how it has invested its funds as of a particular point in time
par value
for a bond, its face value, or the amount returned to the investor at the maturity date when the bond is due
waiting period
from the time you are disabled until you begin to receive benefits
no-load mutual funds
funds that sell directly to investors and do not charge a fee
open-end mutual funds
funds that sell shares directly to investors and repurchase those shares whenever investors wish to sell them
bond mutual funds
funds that sell shares to individuals and invest the proceeds in bonds
stock mutual funds
funds that sell shares to individuals and invest the proceeds in stocks
closed-end funds
funds that sell shares to investors but do not repurchase them; instead fund shares are purchased and sold on stock exchanges
load mutual funds
funds whose shares are sold by a stockbroker who charges a fee for the transaction
living benefits
allows policyholder to receive a portion of death benefits before they die
conversion option
allows you to convert your term insurance policy into a whole life policy that will be in effect the rest of your life
limited payment policy
allows you to pay premiums over a specified period but remain insured for life
nonforfeiture clause
allows you to receive the savings you accumulated if you terminate your whole life policy
renewability option
allows you to renew your policy for another term once an existing policy expires
premium
amount by which a closed-end fund's share price in the secondary market is above the fund's NAV
liability
amount you may have to pay to others for damage you caused them or their property
Roth 401(k) plan
an alternative to a 401(k) account available to people employed by participating companies
mutual fund supermarket
an arrangement offered by some brokerage firms that enables investors to diversify among various mutual funds (from different mutual fund families) and to receive a summary statement for these funds on a consolidated basis
Rollover IRA
an individual retirement account into which you can transfer your assets from your company retirement plan tax-free while avoiding early withdrawal penalties
buy stop order
an order to buy a stock when the price rises to a specified level
market order
an order to buy or sell a stock at its prevailing market price
limit order
an order to buy or sell a stock only if the price is within the limits that you specify
stop order
an order to execute a transaction when the stock price reaches a specified level; a special form of limit order
sell stop order
an order to sell a stock when the price falls to a specified level
defined-benefit plan
guaranteed a specific amount of income when you retire based on your salary and years of employment
vested
having a claim to a portion of the money in an employer-sponsored retirement account that has been reserved for you on your retirement even if you leave the company
underwriters
hired to calculate risk and decide what policies to offer and premiums to charge
investment objective
in a prospectus, a brief statement about the general goal of the mutual fund
investment strategy
in a prospectus, a summary of the types of securities that are purchased by the mutual fund in order to achieve its objective
inflation
increase in the general level of prices
institutional investors
individuals who invest funds in securities
Medigap insurance
insurance provided by private insurance companies to cover medical expenses that are not covered by Medicare
passive strategy
investing in a diversified portfolio of bonds that are held for a long period of time
maturity matching strategy
investing in bonds that will generate payments to match future expenses
day traders
investors who buy stocks and then sell them on the same day
living will
legal document in which individuals specify their preferences if they become mentally or physically disabled
trust
legal document in which the grantor transfers assets to the trustee who manages them for designated beneficiaries
will
legal request for how your estate should be distributed on your death
odd lot
less than 100 shares of stock
term insurance
life insurance provided over a specified time period and does not build cash value
mortgage life insurance
life insurance that pays off a mortgage in the event of the policyholder's death
whole life insurance
life insurance that provides benefits to the beneficiary and also accumulates a cash value.
hedge funds
limited partnerships that manage portfolios of funds for wealthy individuals and financial institutions
Federal Agency Bonds
long-term debt securities issued by federal agencies
bonds
long-term debt securities issued by government agencies or corporations
corporate bonds
long-term debt securities issued by large firms
municipal bonds
long-term debt securities issued by state and local government agencies
treasury bonds
long-term debt securities issued by the U.S. Treasury
secondary market
market in which existing securities are traded
primary market
market where newly issues securities are traded
fiscal policy
means by which the gov imposes taxes on individuals and corporations and by which it spends its money
replacement policy
pays you for the cost of replacing the damaged property
cash value policy
pays you for the value of the damaged property after considering depreciation
probationary period
period from the time your disability income is approved until your coverage goes into effect
executor
person designated to execute the terms of a will
beneficiary
person named to receive the benefits of an insurance policy
monetary policy
policy established by the federal reserve to adjust the supply of funds in the financial system in order to influence interest rates
round lot
shares bought or sold in multiples of 100
defined-contribution plan
specifies guidelines under which you and/or your employer can contribute to your retirement account and that allows you to invest the funds as you wish
growth stocks
stocks of firms with substantial growth opportunities
income stocks
stocks that provide investors with periodic income in the form of large dividends
Group Term Insurance
term insurance with generally lower than typical premiums that is available to people within a defined group
estate planning
the act of planning for how your wealth will be allocated on or before your death
settlement options
the alternative ways a beneficiary can receive life insurance benefits in the event that the insured person dies
discount
the amount by which a closed-end fund's share price in the secondary market is below the fund's NAV
expense ratio
the annual expenses per share divided by the net asset value of a mutual fund
yield to maturity
the annualized return on a bond if it is held until maturity
decreasing-term insurance
the benefits that will be paid to the beneficiary are reduced over time and the premium remains constant
premium
the cost of obtaining insurance
risk premium
the extra yield required by investors to compensate for the risk of default
Net Asset Value (NAV)
the market value of the securities that a mutual fund has purchased - any liabilities owed
installment payments settlement
the payment of life insurance benefits owed to a beneficiary as a stream of equal payments over a specified number of years
beneficiaries
the persons specified in a will to receive a part of an estate
asset allocation
the process of allocating money across financial assets with the objective of achieving a desired return while maintaining risk of a tolerable level
trustee
a person or institution named to manage assets on behalf of the beneficiaries
risk
exposure to events that can cause financial loss
portfolio
set of multiple investments in different assets
One-participant 401(k) plan
A 401(k) plan for self-employed individuals, subject to the same rules and contribution limits as 401(k) plans for employees
403(b) plan
A defined contribution plan that allows employees of nonprofit organization's to invest up to $18,000 of their income on a tax-deferred basis
annuity
A financial contract that provides annual payments over a specified period
keogh plan
A retirement plan that enables high income self-employed individuals to contribute part of their pretax income to a retirement account
Testamentary Trust
A trust created by will.
Mortgage REITs
REITs that invest in mortgage loans that help to finance the development of properties
Equity REITs
REITs that invest money directly in properties
Income Method
a method that determines how much life insurance is needed based on the policyholder's annual income
grantor
Person who creates a trust
Ticker Symbol
The abbreviated term that is used to identify a stock for trading purposes
interest payments settlement
a method of paying life insurance benefits in which the company retains the amount owed for a specified number of years and pays interest to the beneficiary
Initial Public Offering (IPO)
The first public offering of a firm's stock to the public
convertible bond
a bond that can be converted into a stated number of shares of the issuer's stock if the stock price reaches a specified price
Discount Brokerage Firm
a brokerage firm that executes your desired transactions but does not offer investment advice
Full-service brokerage firm
a brokerage firm that offers investment advice and executes transactions
profit sharing
a defined-contribution plan in which the employer makes contributions to employee retirement accounts based on a specified profit formula
401(k) plan
a defined-contribution plan that allows employees to contribute a maximum of $17,000 ($22,500 if they are age 50 or older) per year on a pre-tax basis
prospectus
a document that provides financial information about a mutual fund, including expenses and past performance
codicil
a document that specifies changes in an existing will
call feature
a feature on a bond that allows the issuer to repurchase the bond from the investor before maturity
surrender charge
a fee that may be imposed on any money withdrawn from an annuity
income statement
a financial statement that measures a firm's revenues, expenses, and earnings over a particular period of time
family
a group of separately managed open-end mutual funds held by one investment company
power of attorney
a legal document authorizing someone to act on your behalf in the event you are incapable
durable power of attorney for health care
a legal document that appoints someone to make the medical decisions for a person in the event he or she becomes unable to do so
probate
a legal process that declares a will valid and ensures the orderly distribution of assets
revocable living trust
a living trust that can be dissolved
irrevocable living trust
a living trust that cannot be changed, although it can provide income to the grantor
economic growth
a measure of growth in a country's economy over a particular period
Consumer Price Index (CPI)
a measure of inflation that represents prices of consumer products such as groceries, household products, housing and gasoline
Producer Price Index (PPI)
a measure of inflation that represents prices of products used to produce other products, such as coal, lumber, and metals
high-yield (junk) bonds
bonds issued by smaller, less stable corporations that are subject to a higher degree of default risk
electronic communications networks (ECNs)
computer systems that match desired purchases and sales of stocks
interstate
condition of dying without a will
insurance policy
contract between insurance and policyholder
long-term care insurance
covers expenses associated with long term health conditions that cause individuals to need help with everyday tasks
Renters Insurance
covers your possessions within a house, condo, or apartment you are renting
risk management
decisions about whether and how to protect against risk
SIMPLE (Savings Incentive Match Plan for Employees) Plan
defined contribution plan intended for firms with 100 or fewer employees
Simplified Employee Pension (SEP) plan
defined contribution plan set up by business owners for themselves and their employees; commonly offered by firms with 1-10 employees or self-employed people
Standard Deviation (SD)
degree of volatility in the stock's returns over time
Exchange Traded Fund (ETF)
designed to mimic particular stock indexes (like index funds) but are traded on a stock exchange like closed-end funds, and their share price changes throughout the day
home inventory
detailed information about your personal property that can be used when filing a claim
Budget (Needs) Method
determines how much life insurance is needed based on future expenses of the household
no-fault programs
do not hold a specific driver liable for causing an accident
over-the-counter (OTC) market
electronic communications network that allows investors to buy or sell securities
preferred stock
entitles shareholders first priority to receive dividends
index bond funds
mutual funds that are intended to mimic performance of a specified bond index
index funds
mutual funds that attempt to mirror the movements of an existing stock index
balanced growth and income funds
mutual funds that contain both growth stocks and stocks that pay high dividends
sector funds
mutual funds that focus on a specific industry or sector, such as technology stocks
corporate bond funds
mutual funds that focus on bonds issued by high-quality firms that tend to have a low degree of default risk
international bond funds
mutual funds that focus on bonds issued by non-U.S. firms or governments
international stock funds
mutual funds that focus on firms that are based outside the U.S.
equity income funds
mutual funds that focus on firms that pay a high level of dividends
treasury bond funds
mutual funds that focus on investment in Treasury bonds
midsize capitalization (mid-cap) funds
mutual funds that focus on medium-size firms
high-yield (junk) bonds
mutual funds that focus on relatively risky bonds issued by firms that are subject to default risk
Small capitalization (small-cap) funds
mutual funds that focus on relatively small firms
technology funds
mutual funds that focus on stocks of technology-based firms and therefore represent a particular type of sector fund
capital appreciation funds
mutual funds that focus on stocks that are expected to grow at a very high rate
growth funds
mutual funds that focus on stocks that have potential for above-average growth
ginnie mae funds
mutual funds that invest in bonds issued by the Government National Mortgage Association
global bond funds
mutual funds that invest in foreign bonds as well as U.S. bonds
municipal bond funds
mutual funds that invest in municipal bonds
socially responsible stock funds
mutual funds that screen out firms viewed by some as offensive
stock option
option to purchase or sell stocks under specified conditions
exercise (strike) price
price at which a stock option is exercised
disability income insurance
provides income to policyholders in the event they become disabled
Universal Life Insurance
provides insurance over a specified term and accumulates savings for the policy holder over this time
Variable Life Insurance
provides insurance over a specified term and allows policyholders to invest residual funds, after the premium is paid, in various investment types
life insurance
provides payment to a specified beneficiary when the policyholder dies
call option
provides the right to purchase 100 shares of a specified stock at a specified price by a specified expiration date
put option
provides the right to sell 100 shares of a specified stock at a specified price by a specified expiration date
on margin
purchasing a stock with a portion of the funds borrowed from a brokerage firm
insurance agent
recommends insurance policies to customers
independent insurance agent
represents many different insurance companies
Roth IRA
retirement plan that enables individuals who are under specific income limits to invest a max amt per year
range of returns
returns of a specific investment over a given period
exchange rate risk
risk realized when the value of a bond drops because the currency denominating the bond weakens against the dollar
default risk
risk that the borrower of funds will not repay the creditors
publicly traded stock indexes
securities whose values move in tandem with a particular stock index representing a set of stocks
interest rate strategy
selecting bonds for investment based on interest rate expectations
Covered Call Strategy
selling call options on stock that you own
interest rate risk
the risk that a bond's price will decline in response to an increase in interest rates
call (prepayment) risk
the risk that a callable bond will be redeemed by the issuer
market risk
the susceptibility of a mutual fund's performance to general stock market conditions
Gross Domestic Product (GDP)
the total market value of all goods and services produced in a country
Fundamental Analysis
the valuation of stocks based on an examination of fundamental characteristics such as revenue or earnings, or the sensitivity of the firm's performance to economic conditions
Technical Analysis
the valuation of stocks based on historical price patterns
floor traders
traders at a stock exchange who execute trades to fulfill orders placed by other investors
market makers
traders who execute trades on the OTC market and earn commissions in the form of a bid-ask spread
specialists
traders who help to create a market in one or more stocks by taking an opposite position to the orders placed by clients
Real Estate Investment Trust (REIT)
trusts that pool investments from individuals and use the proceeds to invest in real estate
captive (exclusive) insurance agent
works for one particular insurance company