2022 AFBA Financial Planning Guide

10-16. SAVINGS & INVESTMENT TERMINOLOGY cont.

Stop-Loss Order. An order to a stockbroker to sell a security at a stipulated price during a declining market in the security, or to buy a security at a stipulated price during a rising market in that security. Trust. An arrangement whereby property is held by one person (called a trustee) for the benefit of another. Usury. Interest in excess of the maximum amount established by law. Warrant. A long-term stock purchase option which allows the holder to buy shares of stock at a specified price. Wasting Asset. An asset which cannot be replaced and its life cannot be prolonged (i.e., a coal mine). Working Capital. The current assets of an enterprise, less the amount of current liabilities, as of a certain date. Yield. In the financial market, the annual net return on an investment expressed as a percent. Yield, Current. An investment’s current annual return, expressed as a percent, at its current market price.

Money Market Fund. A mutual fund that specializes in investing in short- term securities. Mutual Company. Usually a corporation having no capital stock and whose profits, less certain deductions, are available for distribution to customers. Option. An oral or written agreement, often for a prepaid consideration, allowing a person to buy or sell something of value within a specified time period. Over-The-Counter Market. The purchase and sale of stock and other securities outside the organized stock exchanges. Port Authority. A commission or agency, usually created by legislative action, which is given power to coordinate land, water, and sometimes airplane traffic in and around an area. Power of Attorney. Legal authority giving one person power to act on behalf of another person in all matters, or in only limited matters. Price-To-Earnings Ratio. The market price of a company’s common stock divided by its per-share earnings. Prospectus. A document which offers securities for sale. It is required, by regulation, to meet certain standards and specifications of the Securities and Exchange Commission directives, plus directives of the state where they are sold.

Public Corporation. A corporation created by the government, usually to serve a public purpose, such as an electric service company. Public Service Corporation. A private corporation providing a service of particular importance for the public’s welfare, such as telephone or electric service corporations. Short Interest. On a given date, the difference between the number of shares of stock “short-sellers” have borrowed and sold, and the number they must buy in the future to replace them. When short interest on a security increases, it usually indicates that the short-sellers think the market price of that security will decrease. Sinking Fund. A fund to which deposits are made on a periodic basis for the purpose of ultimately paying a debt (such as a bond) or replacing an asset, such as a building. Solvency. A condition that exists when a company’s (or a person’s) total assets exceed their total liabilities. Stock Rights. A short-term stock purchase option which allows existing stockholders to buy shares of a new stock issue at a price which is below the prevailing market price of their currently held shares.

CHAPTER 10: SAVINGS & INVESTMENTS

Made with FlippingBook. PDF to flipbook with ease