Glossary of Terms (A - E)

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Annual Meeting
A once-a-year gathering of shareholders of a company. At the annual meeting, shareholders vote on important corporate issues, and the company management reports on how the company did during the previous year.

Annual Report
This document gives detailed information on a company's financial health for the past year. Along with detailed financial statements, a company's annual report will also include a description of the company's operations for the year. A company is required by law to mail an annual report to all of its shareholders.A mutual fund is also required to report on fund performance to its shareholders. However, mutual funds are required by laws to report to shareholders every six months. So, a mutual fund issues an annual report (covering a 12-month period) and a semiannual report (covering a six-month period). A mutual fund's reports also contain detailed financial statements, as well as a discussion of the fund's performance and the economic events that affected it during the period.
Asset Anything owned by a company, individual or mutual fund that has either commercial or monetary value or can be exchanged for other items of value

Auditors
These are accountants who are hired by a company to examine its financial statements and the documents that support those statements. This examination is called an "audit." An accountant is someone who keeps or examines the financial records of a company or individual. Auditors are not employees of the company that has hired them.

Balance Sheet
A financial statement that lists the total value of (a) everything a company owns (also called as assets), (b) the company's debts (which are called liabilities) and (c) the value of stockholders' stock on a specific date. It is called a balance sheet because assets must equal the sum of the company's liabilities plus the value of stockholders' stock.

Bear Market
This term usually refers to the stock market. It is a period during which stock prices are generally falling.

Benchmark
For a mutual fund, it is the index used to compare the fund's performance with the broader market. This index is an unmanaged group composed of either stocks or bonds, which tracks the performance of those securities (another name for a stock or bond is a "security"). Generally, a mutual fund will compare its performance with a broad-based index, which is an index composed of securities from a variety of industries. If a mutual fund is focused on a particular sector or industry, it may use an index focused on that sector as one of its benchmarks.A mutual fund can compare its performance to more than one index. A fund's benchmarks are listed in its prospectus. It is not possible to invest directly in an index.

Blue Chip
Used as an adjective, it describes the stock of a large, well-known company that has a long record of profit growth, divided payment and a reputation for quality management, products and services.

Bond
A bond is like a loan. When a government or corporation wants to borrow money for a long period of time, it will usually issue multiple bonds for pre-set amounts. The sum of all of these bonds equals the amount of money the government or corporation wants to borrow. The amount of the bond is called the principal. When a person purchases a bond, and bonds can only be purchased in the amount of the principal, it's as if that person has loaned money to the government or corporation that issued the bond, also known as the bond issuer. The bond issuer agrees to pay the lender, or bond holder, a fixed rate of interest until the date that the issuer is supposed to pay back the principal. This rate of interest is called the bond's coupon rate.

Broker/Dealer
A firm that buys and sells mutual fund shares and other securities to and from other investors.

Bull Market
This term usually refers to the stock market. It is a period during which stock prices are generally rising.

Capital Appreciation
An increase in the price of a stock, bond or other asset.

Capital Gain
The profit you make when you are able to sell an investment for more money than you paid for it.

Capital Loss
The money you lose when you sell an investment for less money than you paid for it.

Certificate of Deposit (CD)/ Fixed Deposit
A special type of deposit account, generally at a bank, which offers a higher rate of interest than a regular savings account. With a CD, you agree to deposit a specified amount of money for a certain period of time with a fixed rate of interest. When that time is up, you can receive the money you invested plus the interest earned. However, you can't remove money from a CD before the time period is up without paying a penalty.

Checking Account /Current account
The type of account at a bank that lets you use money you have deposited in the account by writing checks. When you want to buy something, you write a check in the name of the company or individual, who in turns presents it to the bank. If there is money in your account to cover the check, the bank will either move your money into the other person's account or give that person cash. If there is not enough money in your account, the bank will not pay the check and will give the check back to the person marked "insufficient funds." This is also known as "bouncing a check." Many banks charge you a fee for bouncing a check. In addition, the person you wrote that check to might not accept a check from you again.

Commercial Paper
When a company or corporation wants to borrow money for a short period of time, it might issue commercial paper.
Commercial paper is an unsecured promissory note stating that the money borrowed will be paid back by a certain date. Simply defined, a promissory note is like an "IOU"- a written promise to pay back money borrowed. Usually, the company agrees to pay the lender within nine months (approximately 270 days). Commercial paper is one of the investments that may be found in the portfolios of mutual funds.

Consumer Price Index (CPI)
The ratio of the current value of a basket of goods and services to the value of the same basket of goods and services in a previous year.

Credit Risk
The possibility that the issuer of a bond will not be able to make interest payments or pay back the face value of a bond to bond holders.

Custodian
Someone who maintains assets for the benefit of another person, usually a child who is not old enough to be considered legally an adult. In many states, 18 is the age at which you are considered an adult, and is also known as the "age of majority." Individuals who are younger than their state's age of majority are also called "minors." When an individual is considered a minor, a custodian protects, manages and maintains assets until the individual reaches the age of majority. Then the individual becomes responsible for those assets.

Diversification
The strategy of investing in a number of different securities or assets (things like stocks, bonds, real estate, cash or art). While this strategy does not assure a profit, it is designed to reduce the effect of market ups and downs.

Dividend
A payment in cash or security that a company makes to shareholders out of the company's earnings.

Naira Cost Averaging
The strategy of investing a fixed sum at regular intervals, whether the stock market is moving up or down. Over time, this strategy reduces the average cost of a share because an investor will buy more shares when prices are down and fewer shares when prices are high. This strategy tends to spread investment risk over time, but does not assure a profit or protect against a loss in a down market.

Earned Income (Income - Expenses = Earned Income or Profit)
This generally refers to companies. It is the sum of the money a company earned minus the money it has spent. Earned income is a positive number. If a company spends more money than it earned, then the sum is known as a "loss."
Equity, equities (pl.) Another term for stocks or ownership interest in a corporation.

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