Financial Terms

ACCOUNT An arrangement by which an organization accepts a customer's financial asset and holds them on behalf of the customer at his or her discretion. ANALYST A financial professional who has expertise in evaluating investments and puts together buy, sell and hold recommendations on securities. ASSET A resource having economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit. ASSET CLASS A specific category of assets or investments such as stocks, bonds, cash, international securities and real estate. Assets within the same class generally exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations. BENCHMARK A standard against which the performance of a security, index or investor can be measured. BOND A debt investment with which the investor loans money to an entity (company or government) that borrows the funds for a defined period of time at a specified interest rate. BOND EXCHANGES in USA BOND RATING A specification of a bond issuer's probability of defaulting based on an analysis of the issuer's financial condition and profit potential. Bond rating services are provided by Standard & Poor's, Moody's Investors Service, and Fitch Investors Service BOOK VALUE The value at which an asset is carried on a balance sheet .In other words, the cost of an asset minus accumulated depreciation. BROKER An individual or firm that charges a fee or commission for executing buy and sell orders submitted by an investor. BROKERAGE ACCOUNT An arrangement between an investor and a licensed brokerage firm that allows the investor to deposit funds with the firm and place investment orders through the brokerage, which then carries out the transactions on the investor's behalf. The investor owns the assets contained in the brokerage account and must usually claim as income any capital gains he or she incurs from the account.

BROKERAGE FIRM The firm which use the brokers to invest the investors money in various asset. CALLABLE BOND A bond that can be redeemed by the issuer prior to its maturity. Usually a premium is paid to the bond owner when the bond is called. Also known as a "redeemable bond". CASH Legal tender or coins that can be used in exchange goods, debt or services. Sometimes also including the value of assets that can be converted into cash immediately, as reported by a company. CASH FLOW A revenue or expense stream that changes a cash account over a given period. Cash in-flows usually arise from one of three activities - financing, operations or investing - though they also occur as a result of donations or gifts in the case of personal finance. Cash out-flows result from expenses or investments. This holds true for both business and personal finance. CINS Foreign securities have a similar number as CUSIP called the "CINS number". COMMODITY The basic idea is that there is little differentiation between a commodity coming from one producer and the same commodity from another producer - a barrel of oil is basically the same product, regardless of the producer. Compare this to, say, electronics, where the quality and features of a given product will be completely different depending on the producer. Some traditional examples of commodities include grains, gold, beef, oil and natural gas. More recently, the definition has expanded to include financial products such as foreign currencies and indexes. Technological advances have also led to new types of commodities being exchanged in the marketplace: for example, cell phone minutes and bandwidth. COMMODITY EXCHANGES in USA COMMON STOCK A security that represents ownership in a corporation. Holders of common stock exercise control by electing a board of directors and voting on corporate policy. Common stockholders are on the bottom of the priority ladder for ownership structure. In the event of liquidation common shareholders have rights to a company's assets only after bondholders, preferred shareholders, and other debt holders have been paid in full. CONVERTIBLE Securities, usually bonds or preferred shares, that can be converted into common stocks CONVERTIBLE BOND A bond that can be converted into a predetermined amount of the company's equity at certain times during its life, usually at the discretion of the bondholder. Convertibles are sometimes called "CVs". COUPON The interest rate stated on a bond when it's issued. The coupon is typically paid semiannually.

CREDIT RATING An assessment of the credit worthiness of individuals and corporations. It is based upon the history of borrowing and repayment, as well as the availability of assets and extent of liabilities. CREDIT RISK The possibility of a loss occurring due to the failure to meet contractual debt obligation. CURRENCY Money circulated within an economy, including coins and paper notes. CURRENCY FORWARD A forward contract in the forex market that locks in the price at which an entity can buy or sell a currency on a future date. Also known as "outright forward currency transaction", "forward outright" or "FX forward". CUSIP An identification number assigned to all stocks and registered bonds. The Committee on Uniform Securities Identification Procedures (CUSIP) oversees the entire CUSIP system. This system is used in the U.S. and Canada. DERIVATIVE In finance, a security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage. Futures contract forward contracts, options and swaps are the most common types of derivatives. Because derivatives are just contracts, just about anything can be used as an underlying asset. There are even derivatives based on weather data, such as the amount of rain or the number of sunny days in a particular region. DISCOUNT The condition of the price of a bond that is lower than par. The discount equals the difference between the price paid for a security and the security's par value.For example, if a bond with a par value of $1,000 is currently selling for $990 dollars, it is selling at a discount. DIVIDEND Distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. The dividend is most often quoted in terms of the dollar amount each share receives (i.e. dividends per share or DPS). It can also be quoted in terms of a percent of the current market price, referred to as dividend yield. DOW JONES INDUSTRIAL AVERAGE The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. The DJIA was invented by Charles Dow back in 1896.When the TV networks say "the market is up today", they are generally referring to the Dow.

EQUITY Equity is a term whose meaning depends very much on the context. In general, you can think of equity as ownership in any asset after all debts associated with that asset are paid off. For example, a car or house with no outstanding debt is considered the owner's equity since he or she can readily sell the items for cash. Stocks are equity because they represent ownership of a company, whereas bonds are classified as debt because they represent an obligation to pay and not ownership of assets. EQUITY EXCHANGES IN USA EQUITY INDEX A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is essentially an imaginary portfolio of securities representing a particular market or a portion of it. EXCHANGE RATE The price of one country's currency expressed in another country's currency. In other words, the rate at which one currency can be exchanged for another. FACE VALUE The nominal value or dollar value of a security stated by the issuer. For stocks, it is the original cost of the stock shown on the certificate. For bonds, it is the amount paid to the holder at maturity (generally $1,000). Also known as "par value" or simply "par". FIXED INCOME Individuals who live on set amounts of periodically paid income face the risk that inflation will erode their spending power. Fixed-income investors receive similar set, regular payments that face the same inflation risk.The most common type of fixed-income security is the bond; bonds are issued by federal governments, local municipalities or major corporations. FOREX The foreign-exchange ("forex" or "FX") market is the place where currencies are traded. The forex market is the largest, most liquid market in the world with an average traded value that exceeds $1.9 trillion per day. FORWARD CONTRACT A cash market transaction in which delivery of the commodity is deferred until after the contract has been made. Although the delivery is made in the future, the price is determined on the initial trade date.Most forward contracts don't have standards and aren't traded on exchanges. A farmer would use a forward contract to "lock-in" a price for his grain for the upcoming fall harvest.

FUTURE The primary difference between options and futures is that options give the holder the right to buy or sell the underlying asset at expiration, while the holder of a futures contract is obligated to fulfill the terms of his/her contract.In real life, the actual delivery rate of the underlying goods specified in futures contracts is very low. This is a result of the fact that the hedging or speculating benefits of the contracts can be had largely without actually holding the contract until expiry and delivering the good(s). For example, if you were long in a futures contract, you could go short the same type of contract to offset your position. This serves to exit your position, much like selling a stock in the equity markets would close a trade. FUTURE CONTRACT The terms "futures contract" and "futures" refer to essentially the same thing. For example, you might hear somebody say they bought "oil futures", which means the same thing as "oil futures contract". If you want to get really specific, you could say that a futures contract refers only to the specific characteristics of the underlying asset, while "futures" is more general and can also refer to the overall market as in: "He's a futures trader." FUTURE EXCHANGES in USA GAAP The common set of accounting principles, standards and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information. GLOBAL FUND A mutual fund that can invest in companies located anywhere in the world, including your own country. GROWTH FUND A diversified portfolio of stocks that has capital appreciation as its primary goal, and thereby invests in companies that reinvest their earnings into expansion, acquisitions, and/or research and development. HEDGE An example of a hedge would be if you owned a stock, then sold a futures contract stating that you will sell your stock at a set price, therefore avoiding market fluctuations.Investors use this strategy when they are unsure of what the market will do. A perfect hedge reduces your risk to nothing (except for the cost of the hedge). HEDGE FUND hedge funds are most often set up as private investment partnerships that are open to a limited number of investors and require a very large initial minimum investment. Investments in hedge funds are illiquid as they often require investors keep their money in the fund for a minimum period of at least one year.You can think of hedge funds as mutual funds for the super-rich. INSTRUMENT A tradeable asset or negotiable item such as a security, commodity, derivative or index, or any item that underlies a derivative. An instrument is a means by which something of value is transferred, held or accomplished.

INTEREST RATE The monthly effective rate paid (or received, if you are a creditor) on borrowed money. Expressed as a percentage of the sum borrowed.Borrowing $1,000 at a 6% interest rate means that you would pay $60 in interest. INTERNATIONAL FUND A mutual fund that can invest in companies located anywhere outside of your own country. International funds, which attempt to provide investors with a diversified portfolio spanning the globe, or country funds, which provide investors with diversified exposure to companies in one specific nation. INVESTMENT BANK The role of the investment bank begins with pre-underwriting counseling and continues after the distribution of securities in the form of advice. IPO The process of selling shares that were formerly privately held to new investors for the first time. Otherwise known as an initial public offering (IPO). ISIN All internationally traded securities issuers are urged to use this numbering scheme, which is now the accepted standard by virtually all countries. The United States and Canada primarily use a similar scheme known as a CUSIP number. ISSUER Say ABC Corp. sells common shares to the general public on the market in order to generate capital to finance its business operations. This means ABC Corp. is an issuer, and it's therefore required to file with regulators, such as the Securities and Exchange Commission, disclosing relevant financial information about the company. ABC must also meet any legal obligations or regulations in the jurisdiction where it issued the security. LIMIT ORDER An order placed with a brokerage to buy or sell a set number of shares at a specified price or better. Limit orders also allow an investor to limit the length of time an order can be outstanding before being canceled. Limit orders typically cost more than market orders. Despite this, limit orders are beneficial because when the trade goes through, investors get the specified purchase or sell price. Limit orders are especially useful on a low-volume or highly volatile stock. LIQUID MARKET A market with many bid or ask offers. The market is characterized by high liquidity, low spreads, low volatility. Changes in supply or demand have a smaller impact on price. A liquid market is the opposite of a thin market. MARKET ORDER An order to buy or sell a stock immediately at the best available current price. MARKET VALUE The current quoted price at which investors buy or sell a share of common stock or a bond at a given time.

MARKETON CLOSE -MOC A market order to be executed as near to the end of the exchange day as possible. Also known as an "at-the-close order." MATURITY The length of time until the principal amount of a bond must be repaid. MUTUAL FUND A security that gives small investors access to a well-diversified portfolio of equities, bonds and other securities. Each shareholder participates in the gain or loss of the fund. Shares are issued and can be redeemed as needed. NASDAQ The term "Nasdaq" used to be capitalized "NASDAQ" as an acronym for National Association of Securities Dealers Automated Quotation. In recent times, the acronym was dropped, and Nasdaq is now used as a proper noun.The Nasdaq is traditionally home to many high-tech stocks. The big ones include Microsoft, Intel, Dell and Cisco.The Nasdaq is a computerized system that facilitates trading and provides price quotations on some 5,000 of the more actively traded over-the-counter stocks. Created in 1971, the Nasdaq was the world's first electronic stock market. NASDAQ 100 INDEX Individual investors are able to gain exposure to the Nasdaq 100 index by purchasing exchange traded funds (ETFs) that are specifically designed to track its performance. The most popular of these ETFs is known as the QQQQ.An index composed of the 100 largest, most actively traded U.S companies listed on the Nasdaq stock exchange. This index includes companies from a broad range of industries with the exception of those that operate in the financial industry, such as banks and investment companies. NASDAQ COMPOSITE INDEX A market-capitalization weighted index of the more than 3,000 common equities listed on the Nasdaq stock exchange. The types of securities in the index include American depository receipts, common stocks, real estate investment trusts (REITs) and tracking stocks. The index includes all Nasdaq listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds (ETFs) or debentures.Unlike other market indexes, the Nasdaq composite is not limited to companies that have U.S. headquarters. It is very common to hear that the closing price of the Nasdaq Composite Index reported in the financial press, or as a component of the evening news NET ASSET VALUE In the context of mutual funds, the total value of the fund's portfolio less liabilities. The NAV is usually calculated on a daily basis. NYSE The NYSE uses floor traders (people) to make trades, whereas the Nasdaq and many other exchanges are computer driven.A corporation, operated by a board of directors, responsible for listing securities, setting policies and supervising the stock exchange and its member activities. The NYSE also oversees the transfer of members' seats on the Exchange, judging whether a potential applicant is qualified to be a specialist.

OPTION A privilege sold by one party to another that offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security at an agreed-upon price during a certain period of time or on a specific date.Options are extremely versatile securities that can be used in many different ways. Traders use options to speculate, which is a relatively risky practice, while hedgers use options to reduce the risk of holding an asset. OPTION EXCHANGES in USA ORDER The instruction, by a customer to a brokerage for the purchase or sale of a security with specific conditions. There are several different types of orders, each offering different conditions.

PINK SHEETS A daily publication compiled by the National Quotation Bureau with bid and ask prices of over-thecounter stocks, including the market makers who trade them. Unlike companies on a stock exchange, companies quoted on the pink sheets system do not need to meet minimum requirements or file with the SEC. Pink sheets also refers to OTC trading.The pink sheets got their name because they were actually printed on pink paper. You can tell if a company trades on the pink sheets because the stock symbol will end in ".PK". PORTFOLIO To reduce their risk, investors tend to hold more than just a single stock or other asset. Think of the portfolio as a pie: each piece is divided up into specific assets such as bonds, equities, etc.The group of assets - such as stocks, bonds and mutuals - held by an investor. PORTFOLIO MANAGER The person responsible for investing a mutual fund's assets, implementing its investment strategy, and managing the day-to-day portfolio trading.The portfolio manager is one of the most important factors to consider when looking at a mutual fund. PORTFOLIO TRADER A commodities trader who holds a long position for the long term. The long term in the commodities markets is usually five to seven months. PREFERRED STOCK A class of ownership in a corporation that has a higher claim on the assets and earnings than common stock. Preferred stock generally has a dividend that must be paid out before dividends to common stockholders and the shares usually do not have voting rights. PRICE when price goes up, yield goes down and vice versa. Technically, you'd say the bond's price and its yield are inversely related. PRIMARY MARKET The market in which investors have the first opportunity to buy a newly issued security .After the first purchases, subsequent trading is said to occur in the secondary market.

RATING An analyst's recommendation on whether to buy, sell or hold a specific stock.Bonds are rated by various organizations such as S&P and Moody's. Ratings range from AAA or Aaa (the highest), to C or D, which represents a company that has already defaulted. REDEMPETION Redemption of mutual fund shares from a mutual fund company must occur within seven days of receiving a request for redemption from the investor.The return of an investor's principal in a security, such as a stock, bond, or mutual fund

REGIONAL FUNDS A mutual fund that confines itself to investments in securities from a specified geographical area, such as Latin America, Europe or Asia. A regional mutual fund will generally look to own a diversified portfolio of companies based in and operating out of its specified geographical area. However, some regional funds can also be set up to invest in a specific segment of the region's economy, such as energy. Regional funds select securities that pass geographical criteria. RESTRICTED STOCK Insider holdings that are under some other kind of sales restriction. Restricted stock must be traded in compliance with special SEC regulations. RETURN The gain or loss of a security in a particular period. The return consists of the income and the capital gains relative on an investment. It is usually quoted as a percentage.The general rule is that the more risk you take, the greater the potential for higher return - and loss. RIC Regulated Investment Company. A mutual fund or real estate investment trust that is eligible to pass the taxes on capital gains, dividends, or interest payments onto the clients or individual investors.This is done to help avoid "double taxing" for investment distributions. RISK The chance that an investment's actual return will be different than expected. This includes the possibility of losing some or all of the original investment. It is usually measured by calculating the standard deviation of the historical returns or average returns of a specific investment.For example, a U.S. Treasury bond is considered to be one of the safest investments and, when compared to a corporate bond, provides a lower rate of return. The reason for this is that a corporation is much more likely to go bankrupt than the U.S. government. Because the risk of investing in a corporate bond is higher, investors are offered a higher rate of return. S&P INDEX A financial service company that rates stocks and corporate and municipal bonds according to risk profiles.

SEC (Security and Exchange Commission) A government commission created by Congress to regulate the securities markets and protect investors.Here's an example of an activity that falls within the SEC's domain: if someone purchases more than 5% of a company's equity, they must report to the SEC within 10 days of the purchase because of the takeover threats it may cause. The SEC is composed of five commissioners appointed by the U.S. President and approved by the Senate. SECONDARY MARKET A market on which an investor purchases an asset from another investor rather than an issuing corporation.A good example is the New York Stock Exchange. Here all stock exchanges are part of the secondary market, as investors buy securities from other investors instead of an issuing company. SECURITY An instrument representing ownership (stocks), a debt agreement (bonds), or the rights to ownership (derivatives).A security is essentially a contract that can be assigned a value and traded. Examples of a security include a note, stock, preferred share, bond, debenture, option, future, swap, right, warrant, or virtually any other financial asset. SEDOL (Stock Exchange Daily Official List) An identification code, consisting of seven alphanumeric characters, that is assigned to all securities trading on the London Stock Exchange and on other smaller exchanges in the U.K.U.K. stocks that do not trade in the U.S. can be identified by their SEDOL code. SETTLEMENT DATE The date by which an executed security trade must be settled. That is, the date by which a buyer must pay for the securities delivered by the seller.The settlement date for stocks and bonds is usually three business days after the trade was executed. For government securities and options, the settlement date is usually the next business day. SHARE Certificates representing ownership in a corporation.Shares are also known as stocks or equities. SHORT SALE A market transaction in which an investor sells borrowed securities in anticipation of a price decline and is required to return an equal amount of shares at some point in the future.The payoff to selling short is the opposite of a long position. A short seller will make money if the stock goes down in price, while a long position makes money when the stock goes up. The profit that the investor receives is equal to the value of the sold borrowed shares less the cost of repurchasing the borrowed shares. SOFT DOLLORS A means of paying brokerage firms for their services through commission revenue, as opposed to through normal payments (hard-dollar fees).Let's say that Cory's Large-Cap Value Fund wants to buy some research from XYZ brokerage firm. Cory's may agree to spend at least $10,000 in commissions at the firm in return for research from the brokerage. This would represent a soft dollar payment. Alternatively, if Cory's wanted to simply buy the research and not agree to any kind of soft dollar fee, he might have to pay the brokerage $7,000 in "hard dollars" (cash) for the transaction.

STOCK A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings. There are two main types of stock: common and preferred. Common stock usually entitles the owner to vote at shareholders' meetings and to receive dividends. Preferred stock generally does not have voting rights, but has a higher claim on assets and earnings than the common shares. For example, one firm may have a lower fixed interest rate, while another has access to a lower floating interest rate. These firms could swap to take advantage of the lower rates. For example, if a company has 1,000 shares of stock outstanding and one person owns 100 shares, that person would own and have claim to 10% of the company's assets. STOCK SYMBOL A unique series of letters assigned to a security for trading purposes. NYSE and AMEX listed stocks have three characters or less. Nasdaq-listed securities have four or five characters. If a fifth letter appears, it identifies the security as other than a single issue of common stock. They are also known as "ticker symbols". STOP ORDER An order to buy or sell a security when its price surpasses a particular point, thus ensuring a greater probability of achieving a predetermined entry or exit price, limiting the investor's loss or locking in his or her profit. Once the price surpasses the predefined entry/exit point, the stop order becomes a market order. Investors commonly use a stop order before leaving for holidays or entering a situation where they are unable to monitor their portfolio for an extended period. SWAPS Traditionally, the exchange of one security for another to change the maturity (bonds), quality of issues (stocks or bonds), or because investment objectives have changed. Recently, swaps have grown to include currency swaps and interest rate swaps.If firms in separate countries have comparative advantages on interest rates, then a swap could benefit both firms. T+1 (T+2, T+3) Abbreviations that refer to the settlement date of security transactions. The T stands for transaction date, which is the day the transaction takes place. The numbers 1, 2 or 3 denote how many days after the transaction date the settlement or the transfer of money and security ownership takes place. T-BILL A short-term debt obligation backed by the U.S. government with a maturity of less than one year. let's say you buy a 13-week T-bill priced at $9,800. Essentially, the U.S. government (and its nearly bulletproof credit rating) writes you an IOU for $10,000 that it agrees to pay back in three months. You will not receive regular payments as you would with a coupon bond, for example. Instead, the appreciation - and, therefore, the value to you - comes from the difference between the discounted value you originally paid and the amount you receive back ($10,000). In this case, the T-bill pays a 2.04% interest rate ($200/$9,800 = 2.04%) over a three-month period. T-BOND A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds are issued with a minimum denomination of $1,000. The bonds are initially sold through auction in which the maximum purchase amount is $5 million if the bid is non-competitive or 35% of the offering if the bid is competitive.

TICKER SYMBOL When a company issues securities to the public marketplace, it selects an available ticker symbol for its securities which investors use to place trade orders. Stock symbols are the most recognized type of ticker symbol. Ticker symbols for options are structured to represent the underlying stock ticker they are based on and also their expiration date and contract type (either a put or a call option). Mutual fund ticker symbols are usually alphanumeric and end with the letter X to differentiate them from stock symbols. TIME IN FORCE A special instruction used when placing a trade to indicate how long an order will remain active before it is executed or expires. Time-in-force options allow traders to be more specific about the time parameters in which an order is activated. This is especially important for active traders.Timein-force options will depend on your broker. Most often, they include options such as day order, good 'till canceled, fill or kill, etc. For example, a day order, as the name implies, is valid for the current trading day. Good 'till canceled orders, on the other hand, will remain live until they are canceled. TRADE A transaction involving the sale and purchase of a security. TRADE DATE The date on which a security trade occurs. This differs from the settlement date, which is usually between one and five days after the trade date, depending on the transaction type. TRADER traders often manage other people's money or simply trade with their own TRADING DESK A desk where transactions for buying and selling securities occur. Trading desks can be found in most organizations (banks, finance companies, etc.) involved in trading investment instruments such as equities, fixed-income securities, futures, commodities and foreign exchange. A trading desk provides traders with access to instantaneous trade executions. Also known as "dealing desk".Trading desks can be either large or small depending on the organization and are occupied by licensed traders, usually specializing in trading one particular type of investment product (e.g. forex traders, commodities traders, stock traders, etc.). The instantaneous trade executions can be particularly important for day traders looking for arbitrage opportunities that usually last only minutes or even seconds. TRANSACTION An agreement between a buyer and a seller for the exchange of goods or services for payment.The parties participating in a transaction have an obligation to perform their part. For example, for two parties involved in a futures contract, the seller is obligated to sell and deliver the underlying asset and the buyer is contractually obligated to pay the agreed upon price and accept the delivery. TRANSACTION TYPE Stocks , pay up, pay down, common stock, rights, warrant and so on.

TYPES OF BONDS Bills(<1yr); Notes(<10 yr); Bonds(>10yrs); Municipal bond(non-tax; ); Corporate bonds(Company issued like callable bond(Redeem before maturity); convertible bonds(Convert to stock));Zerocoupon bond(no coupon but issued at discount to par value) TYPES OF STOCKS PREFERRED & COMMON STOCKS UNDER WRITER A company or other entity that administers the public issuance and distribution of securities from a corporation or other issuing body. An underwriter works closely with the issuing body to determine the offering price of the securities, buys them from the issuer and sells them to investors via the underwriter's distribution network.Underwriters generally receive underwriting fees from their issuing clients, but they also usually earn profits when selling the underwritten shares to investors. However, underwriters assume the responsibility of distributing a securities issue to the public. If they can't sell all of the securities at the specified offering price, they may be forced to sell the securities for less than they paid for them, or retain the securities themselves.

VALUE FUND A mutual fund that primarily holds value stocks, stocks deemed to be undervalued in price.There are numerous examples of value funds. Every large mutual fund family has a value fund component, which are often broken down by size. For example, a fund family may include small-, mid- and large-cap value funds for investors to choose from. The premise of value investing is that the market has inherent inefficiencies that enable companies to trade at levels below what the are actually worth. In theory, once the market corrects these inefficiencies the value investor will see the share price rise. A common misconception is that value investors simply seek out low P/E stocks. Although this can be a characteristic of an undervalued company, this is not the sole feature that astute value investors seek. YIELD The rate of income generated from a stock in the form of dividends, or the effective rate of interest paid on a bond, calculated by the coupon rate divided by the bond's market price. In general, yield is the annual rate of return for any investment and is expressed as a percentage