Definitions P-Z Flashcards
Define: par
The dollar amount the issuer assigns to a security. For an equity security, par is usually a small dollar amount that bears no relationship to the security’s market price. For a debt security, par is the amount repaid to the investor when the bond matures, usually $1,000. Syn. face value; principal; stated value. See capital surplus; maturity date.
Define: parity price of common
The dollar amount at which a common stock is equal in value to its corresponding convertible security. It is calculated by dividing the convertible security’s market value by its conversion ratio.
Define: parity price of convertible
The dollar amount at which a convertible security is equal in value to its corresponding common stock. It is calculated by multiplying the market price of the common stock by its conversion ratio.
Define: participation
The provision of the Employee Retirement Income Security Act of 197 4 requiring that all employees in a qualified retirement plan be covered within a reasonable time of their dates of hire.
Define: partnership
A form of business organization in which two or more individuals manage the business and are equally and personally liable for its debts.
Define: partnership account
An account that empowers the individual members of a partnership to act on the behalf of the partnership as a whole.
Define: partnership management fee
The amount payable to the general partners of a limited partnership, or to other persons, for managing the day-to-day partnership operations. Syn. program management fee; property management fee.
Define: par value
The dollar amount assigned to a security by the issuer. For an equity security, par value is usually a small dollar amount that bears no relationship to the security’s market price. For a debt security, par value is the amount repaid to the investor when the bond matures, usually $1,000. Syn. face value; principal; stated value. See capital surplus; discount bond; premium bond.
Define: passive income
Earnings derived from a rental property, limited partnership, or other enterprise in which the individual is not actively involved. Passive income therefore does not include earnings from wages or active business participation, nor does it include income from dividends, interest, and capital gains. See passive loss; unearned income.
Define: passive loss
A loss incurred through a rental property, limited partnership, or other enterprise in which the individual is not activity involved. Passive losses can be used to offset passive income only, not wage or portfolio income. See passive income.
Define: passive management style
In a perfectly efficient market, investors should use a passive investment strategy (i.e., buying a broad market index of stocks and holding it) because active investment strategies will underperform due to transactions costs and management fees. However, to the extent that market prices are inefficient, active investment strategies can generate positive risk-adjusted returns. See active management style.
Define: pass-through certificate
A security representing an interest in a pool of conventional, Veterans Administration, Farmers Home Administration, or other agency mortgages. The pool receives the principal and interest payments, which it passes through to each certificate holder. Payments may or may not be guaranteed. See Federal National Mortgage Association; Government National Mortgage Association.
Define: pattern
A repetitive series of price movements on a chart used by a technical analyst to predict future movements of the market.
Define: payment date
The day on which a declared dividend is paid to all stockholders owning shares on the record date.
Define: PE
See price-earnings ratio.
Define: peak
The end of a period of increasing business activity throughout the economy, one of the four stages of the business cycle. Syn. prosperity. See business cycle.
Define: pecuniary
Of or relating to money, such as operating for pecuniary profit.
Define: pegging
An illegal form of market manipulation that attempts to keep the price of a subject security from falling. It is used by those with a long position. See capping.
Define: pension plan
A contract between an individual and an employer, a labor union, a government entity, or another institution that provides for the distribution of pension benefits at retirement.
Define: Pension Reform Act
See Employee Retirement Income Security Act of 1974.
Define: PE ratio
See price-earnings ratio.
Define: performance-based fee
An investment advisory fee based on a share of capital gains on, or capital appreciation of, client assets. A fee that is based upon a percentage of assets that the IA manages is not a performance-based fee. this fee may only be charged to certain high net worth clients.
Define: person
As defined in securities law, an individual, corporation, partnership, association, fund, joint stock company, unincorporated organization, trust, government, or political subdivision of a government.
Define: personal income (Pl)
An individual’s total earnings derived from wages, passive business enterprises, and investments. See disposable income.
Define: Pink Sheets
See OTC Link.
Define: point
A measure of a bond’s price; $10 or 1 % of the par value of $1,000. See basis point.
Define: political risk
The risk that an investment’s returns could suffer as a result of political changes or instability in a country such as from a change in government, orderly or not, nationalization of industries, or military control.
Define: portfolio income
Earnings from interest, dividends, and all nonbusiness investments. See earned income; passive income; unearned income.
Define: portfolio manager
The entity responsible for investing a mutual fund’s assets, implementing its investment strategy, and managing day-to-day portfolio trading. Syn. fund manager.
Define: position
The amount of a security either owned (a long position) or owed (a short position) by an individual or a dealer. Dealers take long positions in specific securities to maintain inventories and thereby facilitate trading.
Define: preferred stock
An equity security that represents ownership in a corporation. It is issued with a stated dividend, which must be paid before dividends are paid to common stockholders. It generally carries no voting rights. See callable preferred stock; cumulative preferred stock.
Define: preferred stock fund
A mutual fund whose investment objective is to provide stable income with minimal capital risk. It invests in income-producing instruments such as preferred stock. See bond fund.
Define: preliminary prospectus
An abbreviated prospectus that is distributed while the SEC is reviewing an issuer’s registration statement. It contains all of the essential facts about the forthcoming offering except the underwriting spread, final public offering price, and date on which the shares will be delivered. Syn. red herring.
Define: premium
(1) The amount of cash chat an option buyer pays to an option seller. (2) The difference between the higher price paid for a security and the security’s face amount at issue. See discount.
Define: premium bond
A bond chat sells at a higher price than its face value. See discount bond; par value.
Define: premium mode
Insurance companies give policyowners the choice to pay premiums annually, semiannually, quarterly or monthly.
Define: present value
The sum of money needed to invest now at a given rate of compound interest to reach a specified amount at a specified future date.
Define: price-earnings ratio (PE)
A tool for comparing the prices of different common stocks by assessing how much the market is willing to pay for a share of each corporation’s earnings. It is calculated by dividing the current market price of a stock by the earnings per share. Syn. earnings multiplier.
Define: primary offering
An offering in which the proceeds of the underwriting go to the issuing corporation, agency, or municipality. The issuer seeks to increase its capitalization either by selling shares of stock, representing ownership, or by selling bonds, representing loans to the issuer. Syn. primary distribution.
Define: prime rate
The interest rate chat commercial banks charge their prime or most creditworthy customers, generally large corporations.
Define: principal
(1) Every business transaction has two principals-the buyer and the seller. When a broker-dealer trades for its own account, it is acting in the capacity of a principal. (2) See dealer. (3) See par.
Define: principal office and place of business
The firm’s executive office from which the firm’s officers, partners, or managers direct, control, and coordinate the activities of the firm.
Define: principal transaction
A transaction in which a broker-dealer either buys securities from customers and takes chem into its own inventory or sells securities to customers from its inventory. See agency transaction; agent; broker; dealer; principal.
Define: private placement
An offering of new issue securities chat complies with Regulation D of the Securities Act of 1933. According to Regulation D, a security generally is not required to be registered with the SEC if it is offered to no more than 35 nonaccredited investors or to an unlimited number of accredited investors. See Regulation D.
Define: profitability
The ability to generate a level of income and gain in excess of expenses.
Define: profitability ratio
One of several measures of a corporation’s relative profit or income in relation to its sales. See margin of profit ratio; return on equity.
Define: profit-sharing plan
An employee benefit plan established and maintained by an employer whereby the employees receive a share of the business’s profits. The money may be paid directly to the employees or deferred until retirement. A combination of both approaches is also possible.
Define: progressive tax
A tax chat takes a larger percentage of the income of high-income earners than chat of low-income earners. An example is the graduated income tax. See regressive tax.
Define: proscribed
A term commonly used in legal situations to describe a prohibited action.
Define: prospectus
Any notice, circular, advertisement, letter, or communication, in written form or by radio or television, which offers any security for sale.
Define: proxy
A limited power of attorney from a stockholder authorizing another person to vote on stockholder issues according to the first stockholder’s instructions. To vote on corporate matters, a stockholder must either attend the annual meeting or vote by proxy.
Define: prudent expert rule
A modern application of the prudent man rule to those with a fiduciary responsibility over qualified plans coming under the jurisdiction of ERJSA.
Define: prudent investor rule
Legally known as the Uniform Prudent Investors Act (UPIA). A modern adaptation of the prudent man rule, which, as a result of the development of modern portfolio theory, applies the standard of prudence to the entire portfolio rather than to individual investments. It requires the fiduciary to measure risk with respect to return.
Define: publicly traded fund
See closed-end investment company.
Define: public offering
The sale of an issue of common stock, either by a corporation going public or by an offering of additional shares. See initial public offering.
Define: public offering price (POP)
(1) The price of new shares that is established in the issuing corporation’s prospectus. (2) The price to investors for mutual fund shares, equal to the net asset value plus the sales charge. See ask; bid; mutual fund; net asset value.
Define: purchasing power risk
The potential chat, because of inflation, a certain amount of money will not purchase as much in the future as it does today. Syn. inflation risk.
Define: put
(1) An option contract giving the owner the right to sell a certain amount of an underlying security at a specified price within a specified time. (2) The act of exercising a put option. See call.
Define: QLAC
A qualified longevity annuity contract. If certain limits prescribed by the IRS are met, RMDs do not have to include the value of these contracts until age 85.
Define: QTIP trust
A trust that is funded with qualified terminable interest property, meaning that the spouse’s interest in the property terminates upon his death; also known as a Q trust, C trust, or current income trust.
Define: Qualified Domestic Relations Orders (QDROs)
Premature distributions that are taken pursuant to a qualified domestic relations order, or QDRO, are exempt from the 10% penalty. A QDRO is a court-issued order that gives someone the right to an individual’s qualified plan assets, typically an ex- (or soon-to-be-ex-) spouse, and the QDRO is usually issued in the course of divorce proceedings or to satisfy child support obligations. A QDRO applies only to assets in a qualified employer plan; it would not be applicable to an IRA or a SEP.
Define: qualified person
Under both state and federal law, a client for whom an investment adviser may charge performance-based fees. Currently, the requirements are a minimum net worth of $2.1 million or at least $1 million in AUM with that adviser.
Define: qualified retirement plan
A corporate retirement plan that meets the standards set by the Employee Retirement Income Security Act of 1974. Contributions to a qualified plan are tax deductible. Syn. approved plan. See also individual retirement account; Keogh plan; nonqualified retirement plan.
Define: qualified tuition program
The technical name for Section 529 Plans. Syn. QTP.
Define: quick asset ratio
A more stringent test of liquidity than the current ratio. It is computed by taking the current assets, less the inventory, and dividing by the current liabilities. Syn. acid test ratio, quick ratio
Define: quotation
The price or bid a market maker or broker-dealer offers for a particular security. Syn. quote. See ask; bid; bond quote; stock quote
Define: quote machine
A computer that provides representatives and market makers with the information that appears on the Consolidated Tape. The information on the screen is condensed into symbols and numbers.
Define: rating
An evaluation of a corporate or municipal bond’s relative safety, according to the issuer’s ability to repay principal and make interest payments. Bonds are rated by various organizations, such as Standard & Poor’s and Moody’s. Ratings range from AAA or Aaa (the highest) to C or D, which represents a company in default.
Define: rating service
A company, such as Moody’s or Standard & Poor’s, that rates various debt and preferred stock issues for safety of payment of principal, interest, or dividends. The issuing company or municipality pays a fee for the rating. See bond rating; rating.
Define: real estate investment trust (REIT)
A corporation or trust that uses the pooled capital of many investors to invest in direct ownership of either income property or mortgage loans. These investments offer tax benefits in addition to interest and capital gains distributions. However, unlike DPPs, these are not “flow-through” vehicles.
Define: realized gain
The amount a taxpayer earns when he sells an asset. See unrealized gain.
Define: recession
A general economic decline lasting from six to 18 months (at least two consecutive quarters of declining or negative DGP growth).
Define: record date
The date a corporation’s board of directors establishes that determines which of its stockholders are entitled to receive dividend distributions or be eligible to vote.
Define: redeemable security
A security that the issuer redeems upon the holder’s request. Examples include shares in an open-end investment company and Treasury notes.
Define: redemption
The return of an investor’s principal in a security, such as a bond, preferred stock, or mutual fund shares. By law, redemption of mutual fund shares must occur within seven days of receiving the investor’s request for redemption.
Define: refunding
Retiring an outstanding bond issue before maturity by using money from the sale of a new debt offering.
Define: regional exchange
A stock exchange that serves the financial community in a particular region of the country. These exchanges tend to focus on securities issued within their regions, but also offer trading in NYSE and Nasdaq-listed securities.
Define: registration by coordination
A process that allows a security to be sold in a state. It is available to an issuer that @es for the security’s registration under the Securities Act of 1933 and files duplicates of the registration documents with the state Administrator. The state registration becomes effective at the same time the federal registration statement becomes effective as long as paperwork is on file with the Administrator for the required period, which ranges from 10 to 20 days depending on the state.
Define: registration by qualification
A process that allows a security to be sold in a state. It is available to an issuer who files for the security’s registration with the state Administrator, meets minimum net worth, disclosure, and other requirements, and files appropriate registration fees. The state registration becomes effective when the Administrator so orders.
Define: registration statement
The legal document that discloses all pertinent information concerning an offering of a security and its issuer. It is submitted to the SEC (and/ or the Administrator) in accordance with the requirements of the Securities Act of 1933 and/or the Uniform Securities Act, and it forms the basis of the final prospectus distributed to investors.
Define: regnant
Considered to be the ruling or general position, such as the regnant view on registration requirements.
Define: regressive tax
A tax that takes a larger percentage of the income of low-income earners than that of high-income earners. Examples include gasoline tax and cigarette tax. See progressive tax.
Define: regulated investment company
An investment company to which Subchapter M of the Internal Revenue Code grants special status that allows the flow-through of tax consequences on a distribution to shareholders. If 90% of its income is passed through to the shareholders, the company is not subject to tax on this income.
Define: Regulation D
The provision of the Securities Act of 1933 that exempts from registration offerings sold in private placements. Rule 506(6) limits the sale to a maximum of 35 nonaccredited investors during a 12 -month period with no advertising permitted, while Rule 506(c) permits advertising but requires that all purchasers be accredited investors. See private placement.
Define: Regulation T
The Federal Reserve Board regulation that governs customer cash accounts and the amount of credit that brokerage firms and dealers may extend to customers for the purchase of securities. Regulation T currently sets the loan value of marginable securities at 50% and the payment deadline at two days beyond regular way settlement. Syn. Reg. T.
Define: regulatory risk
The risk that changes in regulations may negatively affect the operations of a company.
Define: reinstatement privilege
A benefit offered by some mutual funds, allowing an investor to withdraw money from a fund account and then redeposit the money without paying a second sales charge.
Define: remainderman
A remainderman is the person who inherits or is entitled under the law to inherit property upon termination of the estate of the former owner. Usually, this occurs due to the death or termination of the former owner’s life estate.
Define: remuneration
Money paid for work performed or a service provided.
Define: repurchase agreement
Sometimes just referred to as a REPO, this is widely used in the money market where the seller of a security agrees to buy it back (repurchase it) at a higher price (the imputed interest rate).
Define: required minimum distribution (RMD)
The amount that traditional and SEP IRA owners and qualified plan participants must begin withdrawing from their retirement accounts by April 1 following the year they reach age70½. Exceptions apply to those covered under a qualified plan who are still employed. RMD amounts must then be distributed by December 31 that year and each subsequent year.
Define: reserve requirement
The percentage of depositors ‘money that the Federal Reserve Board requires a commercial bank to keep on deposit in the form of cash or in its vault. Syn. reserves.
Define: residual claim
The right of a common stockholder to corporate assets in the event that the corporation ceases to exist. A common stockholder may claim assets only after the claims of all creditors and other security holders have been satisfied.
Define: resistance level
A technical analysis term describing the top of a stock’s historical trading range. See support level. Top of a stock’s historical trading range. See support level.
Define: restricted security
An unregistered, nonexempt security acquired either directly or indirectly from the issuer, or an affiliate of the issuer, in a transaction that does not involve a public offering. See holding period; Rule 144 .
Define: retained earnings
The amount of a corporation’s net income that remains after all dividends have been paid to preferred and common stockholders. Syn. earned surplus; reinvested earnings.
Define: retiring bonds
Ending an issuer’s debt obligation by calling the outstanding bonds, by purchasing bonds in the open market, or by repaying bondholders the principal amount at maturity.
Define: return on common equity
A measure of a corporation’s profitability, calculated by dividing after-tax income by common shareholders’ equity.
Define: return on equity
A measure of a corporation’s profitability, specifically its return on assets, calculated by dividing after-tax income by tangible assets.
