Investment Terminology

Financial Terminology:

MC Market Capitalization: The aggregate value of a company or stock.
MC = (Number of Shares Outstanding)(Current Price Per Share)

P/E Ratio: Most common measure of how expensive a stock is.
P/E = MC/After-Tax Earnings During 12 Months

Preferred Stock: Capital Stock which provides a specific dividend that is paid before any dividends are paid to common stock holders, and which takes precedence over common stock in the event of a liquidation.

Book Value: A company's common stock equity as it appears on a balance sheet.
Book Value = Total Assets - Liabilities, Preferred Stock, and Intangible Assets Such as Goodwill

Equity: Ownership interest in a corporation in the form of common stock or preferred stock. Total assets minus total liabilities; here also called shareholders's equity or net worth or book value.

Hedge: An investment made in order to reduce the risk of adverse price movements in a security, by taking an offsetting position in a related security, such as an option or short sale.

Risk: The quantifiable likelihood of loss or less-than-expected returns.

Commodity: A physical substance which is interchangeable with another product of the same type and which investors buy or sell, usually through futures contracts.

Inflation: The overall general upward price movement of goods and serviced in an economy (often caused by an increase in the supply of money), usually as measured by the Consumer Price Index. As the price of goods and services increases, the value of the dollar falls and an individual has less purchasing power. The FED tried to maintain a 2-3% inflation rate.

Security: An investment instrument, other than an insurance policy or fixed annuity issued by a corporation, government, or other organization which offers evidence of debt or equity.

Annuity: A contract sold by an insurance company designed to provide payments to the holder at specified intervals, usually after retirement. The holder is taxed only when they start taking distributions or if they withdraw funds from the account. All annuities are tax-deferred.

Over-The-Counter (OTC): A decentralized market (as opposed to an exchange market) where geographically dispersed dealers are linked by telephones and computers. The market is for securities not listed on a stock or derivatives exchange.

Beta: The measure of an asset's risk in relation to the market.
Beta = [(n)(sum of [xy]]-[(sum of x)(sum of y)]/[(n)(sum of [xx]]-[(sum of x)(sum of x)]
where n = # of observations, usually 36 to 60 months
x = rate of return for the S&P 500
y = rate of return for the security

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