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Investment Basics
Terms
| Term | Definition |
|---|---|
| Asset Allocation | the distribution of assets across different asset classes to create a portfolio with the desired risk and return characteristics |
| Asset Class | a group of securities that exhibit similar characteristics and behave similarly in different market conditions Cash, Bonds, Stocks |
| Capital Gains Yield | the change in price during a period divided by the beginning price |
| Coupon Rate | the interest rate paid to bondholders for ‘lending’ their money to the bond issuer |
| Credit Quality | a rating of a bond issuer’s ability to repay interest and principal |
| Current Yield | the current rate of return on an investment calculated by dividing its expected income payments by its current market price |
| Dollar Return | the gain or loss, in dollars, on an investment owned over a period of time |
| Discount | the amount by which the market price of a bond is below the principal amount due at maturity |
| Income Yield | income received for holding the investment expressed as a percentage of the beginning price |
| Liquidity | an asset that can be sold quickly without a significant price concession |
| Issuer | a legal entity that sells securities for the purpose of financing its operations |
| Maturity | the length of time until the principal amount of a bond must be repaid |
| Nominal Yield | the interest rate to be paid by the issuer on the face value of the bond |
| Par | the face value of a bond (i.e. the dollar amount assigned to the bond when its first issued) |
| Premium | the amount by which the market price of a bond is above the principal amount due at maturity |
| Principal | original amount borrowed on a bond |
| Rate of Return aka Total Return (%) | the return on an investment measured as a percentage of the originally invested sum that accounts for all cash flows and capital gains or losses; allows for comparison among different types of investments |
| “Risk-Free” Rate | the rate of return earned on short-term debt issued by the United States Government (Treasury Bills) |
| Risk Premium | the differential over the risk free rate of return paid to compensate investors for risk exposure |
| Time Value of Money | growth of an investment at the “risk-free” rate; compensation for ‘waiting’ |
| Total Market Capitalization (“Market Cap”) | stock price multiplied by the number of outstanding shares of a stock, or the total value of the company’s stock |
| Volatility | the amount and frequency of fluctuations in the price of a security , commodity, or a market index within a specified time period |
| Yield to Maturity (YTM) | the rate of return on a bond if it is held until maturity |
Created by:
gregt864
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