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This article is from the What Every Investor Should Know.

Section 9. Glossary of Investment Terms

Ask

The lowest price a broker asks customers to pay for a security.

Beneficial Owner

The true owner of a security which may, for convenience, be recorded under the name of a nominee.

Bid

The highest price a broker is willing to pay for a security.

Bond

A certificate which is evidence of a debt in which the issuer promises to repay a specific amount of money to the bondholder, plus a certain amount of interest, within a fixed period of time.

Broker-Dealer

An entity engaged in the business of buying and selling securities.

Call

The right in options contracts to buy underlying securities at a specified price at a specified time. Also refers to provisions in bond contracts that allows issuers to buy back bonds prior to their stated maturity.

Cash Account

A type of account with a broker-dealer in which the customer agrees to pay the full amount due for the purchase of securities within a short period of time, usually five business days.

Closed-end Fund

A type of investment company whose securities are traded on the open market rather than being redeemed by the issuing company.

Commission

The fee charged by a broker-dealer for services performed in buying or selling securities on behalf of a customer.

Discretionary Account

A type of account with a broker-dealer in which the investor authorizes the broker to buy and sell securities, selected by the broker, at a price, amount, and time the broker believes to be best.

Dividend

A payment by a corporation to its stockholders, usually representing a share in the company's earnings.

Equity Security

An ownership interest in a company, most often taking the form of corporate stock.

Face Value

The amount of money which the issuer of a bond promises to repay to the bondholder on or before the maturity date.

Form 8-K

A current report required to be filed with the SEC if a certain specified event occurs, such as: a change in control of the registrant, acquisition or disposition of assets, bankruptcy or receivership, or other material event. Form 8-K is required to be filed within 15 days of the event.

Form 10-K

The designation of the official audited financial report and narrative which publicly owned companies must file with the SEC. It shows assets, liabilities, equity revenues, expenses, and so forth. It is a reflection of the corporation's condition at the close of the business year, and the results of operations for that year.

Form 10-Q

Quarterly reports containing interim information that is "material"--important for investors to know. These must be filed with the SEC.

Interest

The payment a corporate or governmental issuer makes to bondholders in return for the loan of money.

Investment Company

A company engaged primarily in the business of investing in securities.

Margin Account

A type of account with a broker-dealer, in which the broker agrees to lend the customer part of the amount due for the purchase of securities.

Money Market Fund

Generally, a mutual fund which typically invests in short-term debt instruments such as government securities, commercial paper, and large denomination certificates of deposit of banks.

Mutual Fund

A pool of stocks, bonds, or other securities purchased by a group of investors and managed by a professional/registered investment company. The investment company itself is also commonly referred to as a mutual fund.

NASDAQ

National Association of Securities Dealers Automated Quotation System is a system that provides broker-dealers with bid and ask prices for some securities traded over the counter.

Net Asset Value

The dollar value of one share of a mutual fund at a given point in time, which is calculated by adding up the value of all of the fund's holdings and dividing by the number of outstanding shares.

No-load Fund

A type of mutual fund that offers its shares directly to the public at their net asset value with no accompanying sales charge.

Odd Lot

Fewer than 100 shares of stock.

Open-end Fund

A type of investment company which continuously offers shares to the public and stands ready to buy back such shares whenever an investor wishes to sell.

Option

A contract providing the right to buy or sell something--often 100 shares of corporate stock--at a fixed price, within a specified period of time.

Over the Counter (OTC)

A market for buying and selling stock between broker-dealers over the telephone rather than by going through a stock exchange.

Prospectus

The document required to be furnished to purchasers of newly registered securities, which provides detailed information about the company issuing the securities and about that particular offering.

Proxy

A written authorization given by shareholders for someone else to cast their votes on such corporate issues as election of directors.

Proxy Statement

A document which the SEC requires a company to send to its shareholders (owners of record) that provides material facts concerning matters on which the shareholders will vote.

Put

The right, in an options contract, to sell underlying securities at a specified price at a specified time.

Quotation (or Quote)

The price at which a security may be bought or sold at any given time.

Registered Securities

Stocks or bonds or other securities for which a registration statement has been filed with the SEC.

REIT

Real Estate Investment Trust, a type of company in which investors pool their funds to buy and manage real estate or to finance construction or purchases.

Restricted Securities

Stocks or bonds which were issued in a private sale or other transaction not registered with the SEC.

Round Lot

Generally, one hundred shares of stock or multiples of 100.

Specialist A member of a stock exchange who operates on the trading floor buying and selling shares of particular securities as necessary to maintain a fair and orderly market.

Stock

An ownership interest in a company, also known as "shares" in a company.

Street Name

A name other than that of the beneficial owner (e.g., a broker-dealer) in which stock may be recorded, usually to facilitate resale.

Unit Investment Trust

A type of investment company with a fixed unmanaged portfolio, typically invested in bonds or other debt securities in which the interests are redeemable.

Yield

Generally, the return on an investment in a stock or bond, calculated as a percentage of the amount invested.

 

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