Financial Glossary

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A

Accommodative monetary policy

Federal Reserve System policy to increase the amount of money available to banks for lending. See: Monetary policy.

Accredited investor

Refers to a wealthy investor (net worth >$million or annual income >$200,000) who does not count to the maximum of 35 people allowed to invest in a private limited partnership.

Accrual bond

A bond on which interest accrues but is not paid to the investor during the time of accrual. The amount of accrued interest is added to the remaining principal of the bond and is paid at maturity.

Accrued interest

Applies mainly to convertible securities. Interest that has accumulated between the most recent payment and the sale of a bond or other fixed-income security. At the time of sale, the buyer pays the seller the bond's price plus "accrued interest," calculated by multiplying the coupon rate by the fraction of the coupon period that has elapsed since the last payment. (If a bondholder receives $40 in coupon payments per bond semiannually and sells the bond one-quarter of the way into the coupon period, the buyer pays the seller $10 as the latter's proportion of interest earned.)

Active Management

The pursuit of investment returns in excess of a specified benchmark.

After-hours dealing or trading

Securities trading after regular trading hours on organized exchanges.

Agency securities

Securities issued by federally related institutions and U.S. government-sponsored entities. Such agencies were created to reduce borrowing costs for certain sectors of the economy, such as agriculture.

Agent

The decision-maker in a principal-agent relationship.

AIMR Performance Presentation Standards

The AIMR-PPS standards are ethical standards to be used primarily by investment managers in the United States and Canada for creating performance presentations that ensure fair representation and full disclosure. The Standards allow investors to directly compare the performance of different investment managers and help to build an environment of credibility and trust in the investment industry.

All or none order (AON)

Used in context of general equities. A limited price order that is to be executed in its entirety or not at all (no partial transaction), and thus is testing the strength/conviction of the counterparty. Unlike an FOK order, an AON order is not to be treated as cancelled if not executed as soon as it is represented in the trading crowd, but instead remains alive until executed or cancelled. The making of "all or none" bids or offers in stocks is prohibited, and the making of "all or none" bids or offers in bonds is subject to the restrictions of Rule 61. AON orders are not shown on the specialist's book because they cannot be traded in pieces. Antithesis of any-part-of order. See: FOK order.

Alpha

Measure of risk-adjusted performance. An alpha is usually generated by regressing the security or mutual fund's excess return on the S&P 500 excess return. The beta adjusts for the risk (the slope coefficient). The alpha is the intercept. Example: Suppose the mutual fund has a return of 25%, and the short-term interest rate is 5% (excess return is 20%). During the same time the market excess return is 9%. Suppose the beta of the mutual fund is 2.0 (twice as risky as the S&P 500). The expected excess return given the risk is 2 x 9%=18%. The actual excess return is 20%. Hence, the alpha is 2% or 200 basis points. Alpha is also known as the Jensen Index. Related: Risk-adjusted return.

American Depository Receipt (ADR)

Certificates issued by a US depository bank, representing foreign shares held by the bank, usually by a branch or correspondent in the country of issue. One ADR may represent a portion of a foreign share, one share or a bundle of shares of a foreign corporation. If the ADR's are "sponsored," the corporation provides financial information and other assistance to the bank and may subsidize the administration of the ADR "Unsponsored" ADRs do not receive such assistance. ADRs are subject to the same currency, political, and economic risks as the underlying foreign share. Arbitrage keeps the prices of ADRs and underlying foreign shares, adjusted for the SDR/ordinary ratio essentially equal. American depository shares (ADS) are a similar form of certification.

Amortization

The repayment of a loan by installments.

Annual fund operating expenses

For investment companies, the management fee and "other expenses," including the expenses for maintaining shareholder records, providing shareholders with financial statements, and providing custodial and accounting services. For 12b-1 funds, selling and marketing costs are also included.

Annual percentage rate (APR)

The periodic rate times the number of periods in a year. For example, a 5% quarterly return has an APR of 20%.

Annual percentage yield (APY)

The effective, or true, annual rate of return. The APY is the rate actually earned or paid in one year, taking into account the effect of compounding. The APY is calculated by taking one plus the periodic rate and raising it to the number of periods in a year. For example, a 1% per month rate has an APY of 12.68% (1.01^12 -1).

Annual rate of return

There are many ways of calculating the annual rate of return. If the rate of return is calculated on a monthly basis, we sometimes multiply this by 12 to express an annual rate of return. This is often called the annual percentage rate (APR). The annual percentage yield (APY), includes the effect of compounding interest.

Annualized gain

If stock X appreciates 1.5% in one month, the annualized gain for that stock over a twelve month period is 121.5% = 18%. Compounded over the 12 month period, the gain is (1.015)^12 -1 = 19.6%.

Annuity

An annuity is a contract between an insurance company and a buyer. The buyer pays a premium, in one or several payments, and the insurance company agrees to pay the buyer a regular return for a specified period of time, usually the remainder of the buyer’s lifetime. The insurance company invests the money to earn interest, receive dividend income, or collect capital gains distributions. The insurance company then pays the buyer an income based on the terms of the contract. Annuities can be variable or fixed, deferred or immediate. A fixed annuity ensures that the insurance company will pay a set principal plus a set interest rate. Returns on a variable annuity, however, fluctuate based on the performance of the investments. With a deferred annuity, the premium gathers interest for a certain set period of time, tax-free, before payments to the buyer begin. Immediate annuities, on the other hand, establish a return for the buyer based on the buyer’s age, part of which is considered principal and part of which is considered taxable interest. Thus, age, wealth, and risk tolerance will heavily influence the type of annuity an individual buyer selects.

Arbitrage

The simultaneous buying and selling of a security at two different prices in two different markets, resulting in profits without risk. Perfectly efficient markets present no arbitrage opportunities. Perfectly efficient markets seldom exist, but, arbitrage opportunities are often precluded because of transactions costs.

Asked price

In context of general equities, price at which a security or commodity is offered for sale on an exchange or in the OTC Market.

Asset

Assets include any of an individual’s possessions that have economic value. The sum of one’s assets is considered to be the individual’s net worth. Assets include stocks, bonds, cash, real estate, jewelry, investments, and other properties.

Asset Allocation

Asset allocation refers to the specific distribution of funds among a number of different asset classes within an investment portfolio; it is diversification put into practice. Funds may be distributed among a number of different asset classes, such as stocks, bonds, and cash funds, each of which has unique types of expected risk and return. Within each asset class are several variations of the asset, meaning that there are levels of risk within each asset class. Asset allocation involves determining what percentage of funds will be invested in each asset. Determining how to allocate funds depends on the individual investor. The investor's goals, time frame, and risk tolerance will all affect how an investor wishes to allocate funds based on the investor's desired return and acceptable risk.

Asset-backed security

A security that is collateralized by loans, leases, receivables, or installment contracts on personal property, not real estate.

Asset classes

Categories of assets, such as stocks, bonds, real estate, and foreign securities.

At-the-money

An option is at the money if the strike price of the option is equal to the market price of the underlying security. For example, if xyz stock is trading at 54, then the xyz 54 option is at the money.

Automated Customer Account Transfer (ACAT)

For transfers of securities from a non-equity trading account to your equity trading account with your broker.

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B

Back-end load fund

A mutual fund that charges investors a fee to sell (redeem) shares, often ranging from 4% to 6%. Some back-end load funds impose a full commission if the shares are redeemed within a designated length of time, such as one year. The commission decreases, the longer the investor holds the shares. The formal name for the back-end load is the contingent deferred sales charge, or CDSC

Balanced mutual fund

This is a fund that buys common stock, preferred stock, and bonds. The same as a balanced fund.

Barbell strategy

A fixed income strategy in which the maturity's of the securities included in the portfolio are concentrated at two extremes.

Basis point

In the bond market, the smallest measure used for quoting yields is a basis point. Each percentage point of yield in bonds equals 100 basis points. Basis points also are used for interest rates. An interest rate of 5% is 50 basis points higher than an interest rate of 4.5%. Sometimes referred to as BPS, BIPS, and pronounced "Bips"

Bear market

Any market in which prices exhibit a declining trend. For a prolonged period, usually falling by 20% or more.

Bearer bond

Bonds that are not registered on the books of the issuer. Such bonds are held in physical form by the owner, who receives interest payments by physically detaching coupons from the bond certificate and delivering them to the paying agent.

Beneficiary

Term used to refer to the person who receives the benefits of a trust or the recipient of the proceeds of a life insurance policy.

Beta

The measure of an asset's risk in relation to the market (for example, the S&P500) or to an alternative benchmark or factors. Roughly speaking, a security with a beta of 1.5, will have move, on average, 1.5 times the market return. [More precisely, that stock's excess return (over and above a short-term money market rate) is expected to move 1.5 times the market excess return).] According to asset pricing theory, beta represents the type of risk, systematic risk, that cannot be diversified away. When using beta, there are a number of issues that you need to be aware of: (1) betas may change through time; (2) betas may be different depending on the direction of the market (i.e. betas may be greater for down moves in the market rather than up moves); (3) the estimated beta will be biased if the security does not frequently trade; (4) the beta is not necessarily a complete measure of risk (you may need multiple betas). Also, note that the beta is a measure of co movement, not volatility. It is possible for a security to have a zero beta and higher volatility than the market.

Bid

The price a potential buyer is willing to pay for a security. Sometimes also used in the context of takeovers where one corporation is bidding for (trying to buy) another corporation. In trading, we have the bid-ask spread which is the difference between what buyers are willing to pay and what sellers are asking for in terms of price.

Bid-asked spread

The difference between the bid and the asked prices.

Blind trust

A trust in which a fiduciary third party has total discretion to make investments on behalf of a beneficiary while the beneficiary is uninformed about the holdings of the trust.

Block trade

A large trading order, defined on the New York Stock Exchange as an order that consists of 10,000 shares of a given stock or at a total market value of $200,000 or more.

Blue-chip company

Blue Chip refers to companies that have become well established and reliable over time, demonstrating sound management and quality products and services. Such companies have shown an ability to function throughout both good and bad economic times, usually paying dividends to investors even during lean years.

Bond

A bond is essentially a loan made by an investor to a division of the government, a government agency, or a corporation. The bond is a promissory note to repay the loan in full at the end of a fixed time period. The date on which the principal must be repaid is the called the maturity date, or maturity. In addition, the issuer of the bond, that is, the agency or corporation receiving the loan and issuing the promissory note, agrees to make regular payments of interest at a rate initially stated on the bond. Interest from bonds is taxable based on the type of bond. Corporate bonds are fully taxable, municipal bonds issued by state or local government agencies are free from federal income tax and usually free from taxes of the issuing jurisdiction, and Treasury bonds are subject to federal taxes but not state and local taxes. Bonds are rated according to many factors, including cost, degree of risk, and rate of income.

Bond discount

The difference by which a bond's market price is lower than its face value. The antithesis of a bond premium, which prevails when the market price of a bond is higher than its face value. See: Original issue discount.

Bond equivalent yield

Bond yield calculated on an annual percentage rate method. Differs from annual effective yield.

Bond rating

A rating based on the possibility of default by a bond issuer. The ratings range from AAA (highly unlikely to default) to D (in default). See: Rating, investment grade.

Book value

A company's total assets minus intangible assets and liabilities, such as debt. A company's book value might be higher or lower than its market value.

Breadth

The percentage of assets or stocks advancing relative to those unchanged or declining. Also the number of independent forecasts available per year. A stock picker forecasting returns to 100 stocks every quarter exhibits a breadth of 400, assuming each forecast is independent (based on separate information).

Broker

An individual who is paid a commission for executing customer orders. Either a floor broker who executes orders on the floor of the exchange, or an upstairs broker who handles retail customers and their orders. Also, person who acts as an intermediary between a buyer and seller, usually charging a commission. A "broker" who specializes in stocks, bonds, commodities, or options acts as an agent and must be registered with the exchange where the securities are traded. Antithesis of dealer.

Bull

An investor who thinks the market will rise. Related: Bear.

Bull market

Any market in which prices are in an upward trend.

Business cycle

Repetitive cycles of economic expansion and recession. The official peaks and troughs of the US cycle are determined by the National Bureau of Economic Research in Cambridge, MA.

Business risk

The risk that the cash flow of an issuer will be impaired because of adverse economic conditions, making it difficult for the issuer to meet its operating expenses.

Busted convertible

Related: Fixed income equivalent. Mainly applies to convertible securities. Convertible bond selling essentially as a straight bond. Assuming the issuer is "money good," or will continue to meet credit obligations, such issues can be highly attractive since the price makes virtually no allowance for the bond's call on the common stock, although such issues usually carry high premiums.

Buy limit order

A conditional trading order that indicates a security may be purchased only at the designated price or lower. Related: Sell limit order.

Buy on margin

Borrowing to buy additional shares, using the shares themselves as collateral.

Buying power

The amount of money available to buy securities, determined by adding the total cash held in brokerage accounts and the amount that could be spent if securities were margined to the limit.

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Call

An option that gives the holder the right to buy the underlying futures contract.

Call date

A date before maturity, specified at issuance, when the issuer of a bond may retire part of the bond for a specified call price.

Call option

An option contract that gives its holder the right (but not the obligation) to purchase a specified number of shares of the underlying stock at the given strike price, on or before the expiration date of the contract.

Callable

Applies mainly to convertible securities. Redeemable by the issuer before the scheduled maturity under specific conditions and at a stated price, which usually begins at a premium to par and declines annually. Bonds are usually called when interest rates fall so significantly that the issuer can save money by issuing new bonds at lower rates.

Capital asset pricing model (CAPM)

An economic theory that describes the relationship between risk and expected return, and serves as a model for the pricing of risky securities. The CAPM asserts that the only risk that is priced by rational investors is systematic risk, because that risk cannot be eliminated by diversification. The CAPM says that the expected return of a security or a portfolio is equal to the rate on a risk-free security plus a risk premium multiplied by the assets systematic risk. Theory was invented by William Sharpe (1964) and John Lintner (1965).

Capital gain

When a stock is sold for a profit, the capital gain is the difference between the net sales price of the securities and their net cost, or original basis. If a stock is sold below cost, the difference is a capital loss.

Capital loss

The difference between the net cost of a security and the net sales price, if the security is sold at a loss.

Capital market

The market for trading long-term debt instruments (those that mature in more than one year).

Capital market line (CML)

The line defined by every combination of the risk-free asset and the market portfolio. The line represents the risk premium you earn for taking on extra risk. Defined by the capital asset pricing model.

Cash-equivalent items

Examples include Treasury bills and Banker's Acceptances.

Cash flow

In investments, cash flow represents earnings before depreciation, amortization, and non-cash charges. Sometimes called cash earnings. Cash flow from operations (called funds from operations by real estate and other investment trusts) is important because it indicates the ability to pay dividends.

Cash flow from operations

A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses that are deducted in calculating net income.

Cash markets

Also called spot markets, these are markets that involve the immediate delivery of a security or instrument. Related: Derivative markets.

Certificate of deposit (CD)

A Certificate of Deposit (CD) is a note issued by a bank for a savings deposit that the individual agrees to leave invested in the bank for a certain term. At the end of this term, on the maturity date, the principal may either be repaid to the individual or rolled over into another CD. The bank pays interest to the individual, and interest rates between banks are competitive. Monies deposited into a Certificate of Deposit are insured by the bank, thus they are a low-risk investment and a good way of maintaining a principal. Maturities may be as short as a few weeks or as long as several years. Most banks set heavy penalties for premature withdrawal of monies from a Certificate of Deposit.

Certified Financial Planner (CFP)

A person who has passed examinations accredited by the Certified Financial Planner Board of Standards, showing that the person is able to manage a client's banking, estate, insurance, investment, and tax affairs.

Certified Public Accountant (CPA)

An accountant who has met certain standards, including experience, age, and licensing, and passed exams in a particular state.

Chapter 7 Proceedings

Provisions of the Bankruptcy Reform Act under which the debtor firm's assets are liquidated by a court because reorganization would fail to establish a profitable business.

Chapter 11 Proceedings

Provisions of the Bankruptcy Reform Act under which the debtor firm is reorganized by a court because the estimated value of the reorganized firm exceeds the expected proceeds from its liquidation.

Charitable remainder trust

An irrevocable trust that pays income to a designated person or persons until the grantor's death, when the income is passed on to a designated charity. A charitable lead trust by contrast allows the charity to receive income during the grantor's life, and the remaining income to pass to designated family members upon the grantor's death.

Chartered Financial Analyst (CFA)

An individual who has passed tests in economics, accounting, security analysis, and money management, administered by the Institute of Chartered Financial Analysts of the Association for Investment Management and Research. Such an individual is also expected to have at least three years of investments-related experience, and meet certain standards of professional conduct. These individuals have an extensive economic and investing background and are competent at a high level of analysis. Individuals or corporations utilize their services as security analysts, portfolio managers or investment advisors.

Chicago Board Options Exchange (CBOE)

A securities exchange created in the early 1970s for the public trading of standardized option contracts. Primary place stock options, foreign currency options, and index options (S&P 100, 500, and OTC 250 index)

Chicago Board of Trade (CBOT)

The largest futures exchange in the US, and was a pioneer in the development of financial futures and options.

Chicago Mercantile Exchange (CME)

A not-for-profit corporation owned by its members. Its primary functions are to provide a location for trading futures and options, to collect and disseminate market information, to maintain a clearing mechanism, and to enforce trading rules. Applies to derivative products. Primary place futures (OTC 250 industrial stock price index, S& P 100 and 500 index) and futures options (S&P 500 stock index) are traded.

Churning

Excessive trading of a client's account in order to increase the broker's commissions.

Clearinghouse

An adjunct to a futures exchange through which transactions executed on its floor are settled by a process of matching purchases and sales. A clearing organization is also charged with the proper conduct of delivery procedures and the adequate

Closed-end fund

An investment company that sells shares like any other corporation and usually does not redeem its shares. A publicly traded fund sold on stock exchanges or over the counter that may trade above or below its net asset value. Related: Open-end fund.

Closed fund

A mutual fund that is no longer issuing shares, mainly because it has grown too large.

CMO REIT

A very risky type of Real Estate Investment Trust investing in the residual cash flows of Collateralized Mortgage Obligation (CMOs). CMO cash flows are derived from the difference between the rates paid by the mortgage loan holders

Collateralized mortgage obligation (CMO)

A security backed by a pool of pass-through rates , structured so that there are several classes of bondholders with varying maturities, called tranches. The principal payments from the underlying pool of pass-through securities are used to retire the bonds on a priority basis as specified in the prospectus. Related: mortgage pass-through security.

Commercial paper

Short-term unsecured promissory notes issued by a corporation. The maturity of commercial paper is typically less than 270 days; the most common maturity range is 30 to 50 days or less.

Commission

The fee paid to a broker to execute a trade, based on number of shares, bonds, options, and/or their dollar value. In 1975, deregulation led to the establishment of discount brokers, who charge lower commissions than full service brokers. Full service brokers offer advice and usually have a staff of analysts who follow specific industries. Discount brokers simply execute a client's order and usually do not offer an opinion on a stock. Also known as a round-turn.

Commodity

A commodity is food, metal, or another fixed physical substance that investors buy or sell, usually via futures contracts.

Common stock

Securities that represent equity ownership in a company. Common shares let an investor vote on such matters as the election of directors. They also give the holder a share in a company's profits via dividend payments or the capital appreciation of the security. Units of ownership of a public corporation with junior status to the claims of secured/unsecured creditors, bondholders and preferred shareholders in the event of liquidation.

Compound interest

Interest paid on previously earned interest as well as on the principal.

Consumer Price Index

The CPI, as it is called, measures the prices of consumer goods and services and is a measure of the pace of US inflation. The US Department of Labor publishes the CPI every month.

Contrarian

An investment style that leads one to buy assets that have performed poorly and sell assets that have performed well. There are two possible reasons this strategy might work. The first is a mean-reversion argument; that is, if the asset has deviated from its usual level, it should eventually return to that usual level. The second reason has to do with overreaction. Investors might have overreacted to bad news sending the asset price lower than it should be.

Convertible bond

General debt obligation of a corporation that can be exchanged for a set number of common shares of the issuing corporation at a prestated conversion price.

Convertible preferred stock

Preferred stock that can be converted into common stock at the option of the holder. See also: participating convertible preferred stock.

Corporate bonds

Debt obligations issued by corporations.

Correlation

Statistical measure of the degree to which the movements of two variables (stock/option/convertible prices or returns) are related. See: Correlation coefficient.

Cost basis

The original price of an asset, used to determine capital gains.

Coupon

The periodic interest payment made to the bondholders during the life of the bond.

Coupon bond

A bond featuring coupons that must be presented to the issuer in order to receive interest payments.

Credit rating

An evaluation of an individual's or company's ability to repay obligations or its likelihood of not defaulting See: Creditworthiness

Credit risk

Credit risk refers primarily to the risk involved with debt investments, such as bonds. Credit risk is essentially the risk that the principal will not be repaid by the issuer. If the issuer fails to repay the principal, the issuer is said to default.

Cross hedging

Applies to derivative products. Hedging with a futures contract that is different from the underlying being hedged. Use of a hedging instrument different from the security being hedged. Hedging instruments are usually selected to have the highest price correlation to the underlying.

CUSIP number

Unique number given to a security to distinguish it from other stocks and registered bonds. See: Committee on Uniform Securities Identification Procedures.

Custodian

Either (1) a bank, agent, trust company, or other organization responsible for safeguarding financial assets, or (2) the individual who oversees the mutual fund assets of a minor's custodial account.

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D

Daily price limit

The level at which many commodity, futures, and options markets are allowed to rise or fall in a day. Exchanges usually impose a daily price limit on each contract.

Date of record

Date on which holders of record in a firm's stock ledger are designated as the recipients of either dividends or stock rights.

Day order

In the context of general equities, request from a customer to either buy or sell stock, that, if not canceled or executed the day it is placed, expires automatically. All orders are day orders unless otherwise specified. Traders often make calls before the opening to check for renewals.

Day trading

Establishing and liquidating the same position or positions within one day's trading.

Dealer

An entity that stands ready and willing to buy a security for its own account (at its bid price) or sell from its own account (at its ask price). Individual or firm acting as a principal in a securities transaction. Principals are market makers in securities, and thus trade for their own account and risk. Antithesis of broker. See: Agency.

Debenture

Any debt obligation backed strictly by the borrower's integrity, e.g. an unsecured bond. A debenture is documented in an indenture.

Debt/equity ratio

Indicator of financial leverage. Compares assets provided by creditors to assets provided by shareholders. Determined by dividing long-term debt by common stockholder equity.

Default

Failure to make timely payment of interest or principal on a debt security or to otherwise comply with the provisions of a bond indenture.

Default risk

The risk that an issuer of a bond may be unable to make timely principal and interest payments. Also referred to as credit risk (as gauged by commercial rating companies).

Deferred interest bond

A bond that pays interest at a later date, usually in one lump sum, effectively reinvesting interest earned over the life of the bond. See: Zero coupon bond.

Deferred taxes

A non-cash expense that provides a source of free cash flow. Amount allocated during the period to cover tax liabilities that have not yet been paid.

Defined benefit plan

A pension plan obliging the sponsor to make specified dollar payments to qualifying employees. The pension obligations are effectively the debt obligation of the plan sponsor. Related: Defined contribution plan

Defined contribution plan

A pension plan whose sponsor is responsible only for making specified contributions into the plan on behalf of qualifying participants. Related: Defined benefit plan

Deflation

Decline in the prices of goods and services. Antithesis of inflation.

Delisting

Removal of a company's security from listing on an exchange because the firm has not abided by specific regulations.

Depository Trust Company (DTC)

DTC is a user-owned securities depository that accepts deposits of eligible securities for custody, executes book-entry deliveries and records book-entry pledges of securities in its custody, and provides for withdrawals of securities from its custody. Central securities repository where stock and bond certificates are exchanged. Most of these exchanges now take place electronically, and few paper certificates actually change hands. The DTC is a member of the Federal Reserve System and is owned by most of the brokerage houses on Wall Street and the NYSE

Depression

Period when excess aggregate supply overwhelms aggregate demand, resulting in falling prices, unemployment problems, and economic contraction.

Derivative

A financial contract whose value is based on, or "derived" from, a traditional security (such as a stock or bond), an asset (such as a commodity), or a market index.

Devaluation

A decrease in the spot price of a currency. Often initiated by a government announcement.

Dilution

Diminution in the proportion of income to which each share is entitled.

Direct placement

Selling a new issue not by offering it for sale publicly, but by placing it with one of several institutional investors.

Discount

Convertible: Difference between gross parity and a given convertible price. Most often invoked when a redemption is expected before the next coupon payment, making it liable for accrued interest. Antithesis of premium.
General: Information that has already been taken into account and is built into a stock or market.
Straight equity: Price lower than that of the last sale or inside market.

Discount rate

The interest rate that the Federal Reserve charges a bank to borrow funds when a bank is temporarily short of funds. Collateral is necessary to borrow, and such borrowing is quite limited because the Fed views it as a privilege to be used to meet short-term liquidity needs, and not a device to increase earnings.

Diversification

Diversification is the process of optimizing an investment portfolio by allocating funds to a number of different assets. Diversification minimizes risks while maximizing returns by spreading out risk across a number of investments. Different types of assets, such as stocks, bonds, and cash funds, carry different types of risk. It is important to diversify among assets with dissimilar risk levels for an optimal portfolio. Investing in a number of assets allows for unexpected negative performances to balance out with or be superseded by positive performances.

Dividend

A dividend is a payment made by a company to its shareholders that is a portion of the profits of the company. The amount to be paid is determined by the board of directors, and dividends may be paid even during a time when the company is not performing profitably. Mutual funds also pay dividends. These monies are paid from the income earned on the investments of the mutual fund. Dividends are paid on a schedule, such as quarterly, semi-annually, or annually. Dividends may be paid directly to the investor or reinvested into more shares of the company’s stock. Even if dividends are reinvested, the individual is responsible for paying taxes on the dividends. Unfortunately, dividends are not guaranteed and may vary each time they are paid.

Dividend rate

The fixed or floating rate paid on preferred stock based on par value.
Dividend Reinvestment Plan (DRP)

Automatic reinvestment of shareholder dividends in more shares of a company's stock, often without commissions. Some plans provide for the purchase of additional shares at a discount to market price. Dividend reinvestment plans allow shareholders to accumulate stock over the long term using dollar cost averaging. The DRP is usually administered by the company without charges to the holder.

Dow Jones Industrial Average

The best known US index of stocks. A price-weighted average of 30 actively traded blue-chip stocks, primarily industrials including, stocks that trade on the New York Stock Exchange. The Dow, as it is called, is a barometer of how shares of the largest US companies are performing. There are hundreds of investment indexes around the world for stocks, bonds, currencies, and commodities.

Duration

A common gauge of the price sensitivity of a fixed income asset or portfolio to a change in interest rates.

Dutch auction

Auction in which the lowest price necessary to sell the entire offering becomes the price at which all securities offered are sold. This technique has been used in Treasury auctions. Often used in risk arbitrage. Auction system in which the price of an item (stock) is gradually lowered until it meets a responsive bid (government T-bills) or offer (corporate repurchase) and is sold. In a corporate repurchase, a range of prices is set by the company within which shareholders are invited to tender their shares. The tender offer is open for a specific period of time (i.e., 20 days), and the quantity of stock to be purchased is stated as well, subject to proration if more shares are tendered than can be legally purchased under the stated terms (often an additional amount equal to 20% of outstanding shares can be purchased). The price paid is that at which the amount stated to be purchased can be sold. Compare to double auction system.

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Earnings

Net income for the company during a period.

Earnings before interest and, taxes (EBIT)

A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. In other words, operating and nonoperating profit before the deduction of interest and income taxes.

Earnings before interest, taxes, depreciation, and amortization (EBITDA)

A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. In other words, operating and nonoperating profit before the deduction of interest and income taxes. Depreciation and amortization expenses are not included in the costs.

Earnings before taxes (EBT)

A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. In other words, operating and nonoperating profit before the deduction of income taxes.

Earnings per share (EPS)

A company's profit divided by its number of outstanding shares. If a company earning $2 million in one year had $2 million shares of stock outstanding, its EPS would be $1 per share. In calculating EPS, the company often uses a weighted average of shares outstanding over the reporting term.

EDGAR

The Securities & Exchange Commission uses Electronic Data Gathering and Retrieval to transmit company documents such as 10-Ks, 10-Qs, quarterly reports, and other SEC filings, to investors.

Effective duration

The duration calculated using the approximate duration formula for a bond with an embedded option, reflecting the expected change in the cash flow caused by the option. Measures the responsiveness of a bond's price-taking into account that expected cash flows will change as interest rates change due to the embedded option.

Efficient frontier

The combinations of securities portfolios that maximize expected return for any level of expected risk, or that minimizes expected risk for any level of expected return. Pioneered by Harry Markowitz.

Efficient Market Hypothesis

States that all relevant information is fully and immediately reflected in a security's market price, thereby assuming that an investor will obtain an equilibrium rate of return. In other words, an investor should not expect to earn an abnormal return (above the market return) through either technical analysis or fundamental analysis. Three forms of efficient market hypothesis exist: weak form (stock prices reflect all information on past prices), semistrong form (stock prices reflect all publicly available information), and strong form (stock prices reflect all relevant information including insider information).

Efficient portfolio

A portfolio that provides the greatest expected return for a given level of risk (i.e., standard deviation), or, equivalently, the lowest risk for a given expected return.

Employee Retirement Income Security Act (ERISA)

The law that regulates the operation of private pensions and benefit plans.

Equity

Ownership interest in a firm. Also, the residual dollar value of a futures trading account, assuming its liquidation is at the going trade price. In real estate, dollar difference between what a property could be sold for and debts claimed against it. In a brokerage account, equity equals the value of the account's securities minus any debit balance in a margin account. Equity is also shorthand for stock market investments.

Ex-dividend

This literally means "without dividend." The buyer of shares when they are quoted ex-dividend is not entitled to receive a declared dividend. It is the interval between the record date and the payment date during which the stock trades without its dividend-the buyer of a stock selling ex-dividend does not receive the recently declared dividend. Antithesis of cum dividend (with dividend).

Exchange Traded Funds

Also known as ETF. A basket of stocks similar to an index mutual fund. However, there are a number of important differences between ETFs and mutual funds. The ETF can be traded within the day, they can be shorted, purchased on margin and there even exists options on some ETFs.

Expected Return

Estimation of the value of an investment, including the change in price and any payments or dividends, calculated from a probability distribution curve of all possible rates of return. In general, if an asset is risky, the expected return will be the risk-free rate of return plus a certain risk premium. Also called expected value.

Expense ratio

The percentage of the assets that are spent to run a mutual fund (as of the last annual statement). This includes expenses such as management and advisory fees, overhead costs, and 12b-1 (distribution and advertising) fees. The expense ratio does not include brokerage costs for trading the portfolio, although these are reported as a percentage of assets to the SEC by the funds in a Statement of Additional Information (SAI). The SAI is available to shareholders on request. Neither the expense ratio nor the SAI includes the transactions costs of spreads, normally incurred in unlisted securities and foreign stocks. These two costs can add significantly to the reported expenses of a fund. The expense ratio is often termed an Operating Expense Ratio (OER).

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F

Federal funds rate

The interest rate that banks with excess reserves at a Federal Reserve district bank charge other banks that need overnight loans. The Fed funds rate, as it is called, often points to the direction of US interest rates. The most sensitive indicator of the direction of interest rates, since it is set daily by the market, unlike the prime rate and the discount rate.

Federal National Mortgage Association (Fannie Mae)

A publicly owned, government-sponsored corporation chartered in 1938 to purchase mortgages from lenders and resell them to investors. Known by the nickname Fannie Mae, it packages mortgages backed by the Federal Housing Administration, but also sells some nongovernment-backed mortgages.

Federal Open Market Committee (FOMC)

The body that is responsible for setting the interest rates and credit policies of the Federal Reserve System.

Federal Reserve Bank

One of the 12 member banks constituting the Federal Reserve System that is responsible for overseeing the commercial and savings banks of its region to ensure their compliance with regulation.

Federal Reserve Board (FRB)

The seven-member governing body of the Federal Reserve System, which is responsible for setting reserve requirements, and the discount rate, and making other key economic decisions.

Federal Reserve System

The monetary authority of the US, established in 1913, and governed by the Federal Reserve Board located in Washington, D.C. The system includes 12 Federal Reserve Banks and is authorized to regulate monetary policy in the US as well as to supervise Federal Reserve member banks, bank holding companies, international operations of US banks, and US operations of foreign banks.

Fee-based compensation

Payment to a financial adviser of a set hourly rate, or an agreed-upon percentage of assets under management, for a financial plan. When the plan is implemented, the adviser may also receive commission on some or all of the investment products purchased, which would be fee-and-commission compensation.

Fee-only compensation

Payment to a financial adviser of a set hourly rate, or an agreed-upon percentage of assets under management, for a financial plan.

Fiduciary

One who must act for the benefit of another party.

Financial planning

Evaluating the investing and financing options available to a firm. Planning includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in the form of a financial plan, and then comparing future performance against that plan.

Fixed income instruments

Assets that pay a fixed dollar amount, such as bonds and preferred stock.

Form 8-K

The form required by the SEC when a publicly held company incurs any event that might affect its financial situation or the share value of its stock.

Form 10-K

A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information.

Forward contract

A contract that specifies the price and quantity of an asset to be delivered on in the future. Forward contracts are not standardized and are not traded on organized exchanges.

401k plan

A 401k plan is a retirement plan sponsored by employers. Employees may choose to have a portion of their salary deferred to any of the 401k investment choices selected by the employer. The employer may also contribute to the employee’s 401k by matching a portion of the investment (for example, $.50 for every $1.00 the employee invests). The investments to which money is deferred may include stocks, bonds, money market funds, and company stocks. Monies deferred into the 401k are allowed to grow tax-free, and these monies are subtracted from the employee’s taxable income. The maximum amount allowed to be contributed to a 401k changes annually. If money is withdrawn from the 401k before the employee turns 59 ½, the individual may have to pay penalties. If the individual changes jobs, the monies in the 401k may be rolled over to a 401k of the new employer or to an Individual Retirement Account (IRA).

Freddie Mac (Federal Home Loan Mortgage Corporation)

A Congressionally chartered corporation that purchases residential mortgages in the secondary market from S&Ls, banks, and mortgage bankers and securities these mortgages for sale in the capital markets.

Free cash flows

Cash not required for operations or for reinvestment. Often defined as earnings before interest (often obtained from the operating income line on the income statement) less capital expenditures less the change in working capital. In terms of a formula:

Free cash flows =

Sales (Revenues from operations)
- COGS (Cost of goods sold-labor, material, book depreciation)
- SG&A (Selling, general administrative costs)
EBIT (Earnings before interest and taxes or Operating Earnings)
- Taxes (Cash taxes)
EBIAT (Earnings before interest after taxes)
+ DEP (Book depreciation)
- CAPX (Capital expenditures)
- ChgWC (Change in working capital)
C (Free cash flows)

There is an issue as to whether you want to define the FCFs to the firm as a whole (the cash flow to all of its security holders), or the FCFs only to the firm's equity holders. For firm valuation, you want the former; for stock valuation you want the latter.

To value the firm, calculate the stream of FCFs to the firm and discount this stream by the firm's WACC (Weighted average cost of capital). This will give you the value of a levered firm, including the tax benefits of debt financing. Alternatively, you can discount the firm's FCFs by its unlevered cost of capital and add separately the present value of the tax benefits.

To value the firm's equity, you can either take the above number and subtract the market value of all outstanding debt (liabilities) or you can calculate the FCFs to the firm's equity holders and discount this stream by the firm's levered equity cost of capital. [Definition and discussion courtesy of Professor Michael Bradley.]

Front-end load

A front-end load is a commission or fee that is charged when an investment is initially purchased. Investments that require a front-end load include mutual funds, annuities, and life insurance policies. Typically, the fee amount is a percentage of the net asset value of the investment.

Full faith-and-credit obligations

The security pledges for larger municipal bond issuers, such as states and large cities that have diverse funding sources.

Fully diluted earnings per shares

Earnings per share expressed as if all outstanding convertible securities and warrants have been exercised.

Fund assets

The total value of a portfolio's securities, cash, and other holdings, minus any outstanding debts.

Fund of funds

A mutual fund or hedge fund that invests in other funds.

Fundamental analysis

Security analysis that seeks to detect misvalued securities through an analysis of the firm's business prospects. Research often focuses on earnings, dividend prospects, expectations for future interest rates, and risk evaluation of the firm. Antithesis of technical analysis. In macroeconomic analysis, information such as interest rates, GNP, inflation, unemployment, and inventories is used to predict the direction of the economy, and therefore the stock market. In microeconomic analysis, information such as balance sheet, income statement, products, management, and other market items is used to forecast a company's imminent success or failure, and hence the future price action of the stock.

Futures contract

A legally binding agreement buy or sell a commodity or financial instrument in a designated future month at a price agreed upon today by the buyer and seller. Futures contracts are standardized according to the quality, quantity, and delivery time and location for each commodity. A futures contract differs from an option because an option is the right to buy or sell, while a futures contract is the promise to actually make a transaction. A future is part of a class of securities called derivatives, so named because such securities derive their value from the worth of an underlying investment.

Future value

The amount of cash at a specified date in the future that is equivalent in value to a specified sum today.

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G

General obligation bonds

Municipal securities secured by the issuer's pledge of its full faith, credit, and taxing power.

Ginnie Mae pass-through

A security guaranteed by the Government National Mortgage Association that is backed by a collection of mortgages, in which the investor receives the interest and principal payments of participating homeowners.

Going private

When publicly owned stock in a firm is replaced with complete equity ownership by a private group. The firm is delisted on stock exchanges and can no longer be purchased in the open markets.

Going public

When a private company first offers shares to the public market and investors. See: IPO.
Good 'til cancelled order (GTC)

An order to buy or sell stock that is good until you execute or cancel it. Brokerages usually set a limit of 30-60 days, at which the G.T.C. order expires if not restated. (Different from a day order.)

Government National Mortgage Association (Ginnie Mae)

A wholly owned U.S. government corporation within the Department of Housing & Urban Development. Ginnie Mae guarantees the timely payment of principal and interest on securities issued by approved servicers that are collateralized by FHA-issued, VA-guaranteed, or Farmers Home Administration (FmHA)-guaranteed mortgages.

Gross domestic product (GDP)

The market value of goods and services produced over time including the income of foreign corporations and foreign residents working in the U.S., but excluding the income of U.S. residents and corporations overseas.

Growth fund

A mutual fund that invests primarily in stocks with a history of and future potential for capital gains.

Growth and income fund

A mutual fund that invests primarily in stocks with a history of capital gains (growth) and consistent dividend payments (income).

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H

Hard dollars

Actual separate payments made by a customer for services, including research, provided by a brokerage firm. Antithesis of soft dollars.

Hedge

Hedging is a strategy of reducing risk by offsetting investments with investments of opposite risk. Risks must be negatively correlated in order to hedge each other; for example, an investment with high inflation risk and low immediate returns with investments with low inflation risk and high immediate returns. Long hedges protect against a short-term position and short hedges protect against a long-term position. Hedging is not the same as diversification, as it aims to protect against risk by counterbalancing a specific area of risk.

Hedge fund

A fund that may employ a variety of techniques to enhance returns, such as both buying and shorting stocks according to a valuation model.

Hedging

A strategy designed to reduce investment risk using call options, put options, short-selling, or futures contracts. A hedge can help lock in profits. Its purpose is to reduce the volatility of a portfolio by reducing the risk of loss.

High-grade bond

A bond with Triple-A or Double-A rating in Standard & Poor's, or Moody's rating system.

High-yield bond

See: Junk bond

Hybrid security

A convertible security whose optioned common stock is trading in a middle range, causing the convertible security to trade with the characteristics of both a fixed income security and a common stock instrument.

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I

I-bonds

Treasury savings bonds with a 30-year maturity indexed to account for inflation.

Illiquid

In the context of finance. absence of cash flow needed to fulfill financial debts and meet obligations. In the context of investments, describes a lightly traded investment such as a stock or bond that is not easily converted into cash.

In-the-money

A put option that has a strike price higher than the underlying futures price, or a call option with a strike price lower than the underlying futures price. For example, if the March COMEX silver futures contract is trading at $6 an ounce, a March call with a strike price of $5.50 would be considered in the money by $0.50 an ounce. Related: Put. Related: deep-in-the-money. Antithesis of out-of-the-money.

Income fund

A mutual fund that seeks to provide to liberal current income from investments.

Index

Statistical composite that measures changes in the economy or in financial markets, often expressed in percentage changes from a base year or from the previous month. Indexes measure the ups and downs of stock, bond, and some commodities markets, in terms of market prices and weighting of companies the index.

Index fund

Investment fund designed to match the returns on a stock market index. Mutual fund whose portfolio matches that of a broad-based index such as the S&P 500 and whose performance therefore mirrors the market as represented by that index.

Indexed bond

Bond whose payments are linked to an index, e.g., the consumer price index.

Individual Retirement Account (IRA)

A retirement account that may be established by an employed person. IRA contributions are tax deductible according to certain guidelines, and the gains in the account are tax-deferred.

Individual Retirement Account (IRA) rollover

A provision of the law governing IRA's that enables a retiree or anyone receiving a lump-sum payment from a pension, profit-sharing, or salary reduction plan to transfer the amount into an IRA.

Inflation

The rate at which the general level of prices for goods and services is rising.

Inflation-indexed securities

Securities such as bonds or notes that guarantee a return higher than the rate of inflation if the security is held to maturity.

Inflation Risk

Inflation risk is the risk that rising prices of goods and services over time, or, generally the cost of living, will decrease the value of the return on investments. Inflation risk is also known as ‘purchasing-power risk’ since it refers to increased prices of goods and services and a decreased value of cash.

Initial public offering (IPO)

A company's first sale of stock to the public. Securities offered in an IPO are often, but not always, those of young, small companies seeking outside equity capital and a public market for their stock. Investors purchasing stock in IPOs generally must be prepared to accept considerable risks for the possibility of large gains. IPOs by investment companies (closed-end funds) usually include underwriting fees that represent a load to buyers.

Insider information

Material information about a company that has not yet been made public. It is illegal for holders of this information to make trades based on it, however received.

Insider trading

Trading by officers, directors, major stockholders, or others who hold private inside information allowing them to benefit from buying or selling stock.

Insiders

These are directors and senior officers of a corporation-in effect, those who have access to inside information about a company. An insider also is someone who owns more than 10% of the voting shares of a company.

Institutional investors

Organizations that invest, including insurance companies, depository institutions,

Insured bond

A municipal bond backed both by the credit of the municipal issuer and by commercial insurance policies.

Interest-only strip (IO)

A security based solely on the interest payments from a pool of mortgages, Treasury bonds, or other bonds. Once the principal on the mortgages or bonds has been repaid, interest payments stop, and the value of the IO falls to zero.

Interest rate risk

The chance that a security's value will change due to a change in interest rates. For example, a bond's price drops as interest rates rise. For a depository institution, also called funding risk: The risk that spread income will suffer because of a change in interest rates.

Internal growth rate

Maximum rate a firm can expand without outside sources of funding. Growth generated by cash flows retained by company.

Internal rate of return (IRR)

Dollar-weighted rate of return. Discount rate at which net present value (NPV) investment is zero. The rate at which a bond's future cash flows, discounted back to today, equal its price.

Inverted yield curve

When short-term interest rates are higher than long-term rates. Antithesis of positive yield curve.

Investment adviser

A person or an organization that makes the day-to-day decisions regarding a portfolio's investments. Also called a portfolio manager.

Investment Advisers Act

Legislation passed in 1940 requiring financial advisers to register with the Securities and Exchange Commission. The measure was enacted to protect the public from fraud or misrepresentation by investment advisers.

Investment Company Act of 1940

Legislation that requires investment companies to register with the SEC and that

Investment-grade bonds

A bond that is assigned a rating in the top four categories by commercial credit rating companies. S&P classifies investment-grade bonds as BBB or higher, and Moody's classifies investment grade bonds as Baa or higher. Related: High-yield bond.

Investment horizon

The length of time a sum of money is expected to be invested. An individual's investment horizon depends on when and how much money will be needed, and the horizon influences the optimal investment strategy. In general, the shorter the investor's horizon, the less risk he/she should be willing to accept.

Investment policy

Statement of objectives and constraints for an individual's or organization's approach.

Investment Policy Statement

An investment policy statement is an important written document that clearly sets out the client’s return objectives and risk tolerance over the relevant time horizon along with applicable constraints such as liquidity needs, tax considerations, regulatory requirements, and unique circumstances. The client objectives and constraints, when considered in light of the capital market expectations, lead to the development of critical investment strategies, the most important of which is the asset allocation decision, but which may also include individual asset class optimization strategies. These strategies suggest the investment style characteristics of individual managers that are selected and how their performance should be monitored and evaluated. The investment policy is the linkage between client objectives and the investment manager. A properly developed investment policy supports long-term discipline and helps insure against ad-hoc revisions in strategy when short-term results might otherwise create portfolio changes as a result of panic or overconfidence.

Investment trust

A closed-end fund regulated by the Investment Company Act of 1940. These funds have a fixed number of shares that are traded on the secondary markets, like corporate stock. The market price may exceed the net asset value per share, in which case shares are selling at a premium. When the market price falls below the (NAV)/share, shares are selling at a discount. Many closed-end funds are of a specialized nature; the portfolio represents a particular industry or, country. These funds are usually listed on US and foreign exchanges.

IRA/Keogh accounts

Special accounts that allow saving taxes deferred until money is withdrawn. These plans are subject to frequent changes in law with respect to the deductibility of contributions. Withdrawals of tax-deferred contributions are taxed as income, including the capital gains from such accounts.

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J

Joint tenants with right of survivorship

In the case of a joint account, on the death of one account holder, ownership of the account assets is transferred to the remaining account holder or holders.

Junk bond

A bond with a speculative credit rating of BB (S&P) or Ba (Moody's) or lower. Junk or high-yield bonds offer investors higher yields than bonds of financially sound companies. Two agencies, Standard & Poors and Moody's Investor Services, provide the rating systems for companies' credit.

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L

Large-cap

A stock with a high level of capitalization, usually at least $5 billion market value.

Lagging indicators

Economic indicators that follow rather than precede the country's overall pace of economic activity. See also: Leading indicators and coincident indicators.

Leading indicator

A change in a measurable economic factor that is evident before the economy starts to follow a specific trend.

Lehman Brothers US Aggregate Bond Index

This index is composed of investment-grade fixed-rate debt issues including: government, corporate, asset-backed, and mortgage backed securities. All bonds included in this index have maturities of at least one year.

Lehman Brothers US High Yield Bond Index

This index is composed of over one-thousand bond issues that are rated Ba1 or lower by Moody’s (in year 2000 54% rated B, 37% rated BB, and 8% rated CCC). All bonds included in this index have maturities of at least one year, are dollar denominated, and are nonconvertible.

Leverage

The use of debt financing, or property of rising or falling at a proportionally greater amount than comparable investments. For example, an option is said to have high leverage compared to the underlying stock because a given price change in the stock may result in a greater increase or decrease in the value of the option.

Limit order

An order to buy a stock at or below a specified price, or to sell a stock at or above a specified price. For instance, you could tell a broker "buy me 100 shares of XYZ Corp at $8 or less" or "sell 100 shares of XYZ at $10 or better" The customer specifies a price, and the order can be executed only if the market reaches or betters that price. A conditional trading order designed to avoid the danger of adverse unexpected price changes.

Liquid market

A market allowing the buying or selling of large quantities of an asset at any time and at low transactions costs.

Liquidity

Liquidity refers to the ease with which investments can be converted to cash at their present market value. Additionally, liquidity is a condition of an investment that shows how greatly the investment price is affected by trading. An investment that is highly liquid is composed of enough units (such as shares) that many transactions can take place without greatly affecting the market price. High liquidity is associated with a high number of buyers and sellers trading investments at a high volume.

Listed security

Stock or bond that has been accepted for trading by one of the organized and registered securities exchanges in the United States. Generally, the advantages of being listed are that exchanges provide: (1) an orderly marketplace; (2) liquidity; (3) fair price determination; (4) accurate and continuous reporting on sales and quotations; (5) information on listed companies; and (6) strict regulation for the protection of security holders. Antithesis of OTC Security.

Load

The sales fee charged to an investor when shares are purchased in a load fund or annuity. See: Bank-end load; front-end load; level load.

Load fund

A mutual fund that sells shares with a sales charge-typically 4% to 8% of the net amount indicated. Some no-load funds also levy distribution fees permitted by Article 12b-1 of the Investment Company Act; these are typically 0. 25%. A true no-load fund has neither a sales charge nor

London Interbank Offered Rate (LIBOR)

The rate of interest that major international banks in London charge each other for borrowings. Many variable interest rates in the US are based on spreads off LIBOR. By contrast with the bid rate LIBID quoted by banks seeking such deposits.

Long

One who has bought a contract to establish a market position and who has not yet closed out this position through an offsetting sale; the opposite of short.

Long bonds

Bonds with a long current maturity. The "long bond"