GLOSSARY

Bond(s)

A debt security where a borrower, like a corporation or government (local; state or federal) is able to raise capital by paying interest to investors. In return, the issuer of the bond is legally obligated to pay interest on the principal and return the full amount when the bond matures (expires). Known as a fixed-income instrument because the bond issuer pays a fixed rate. AKA coupon

Municipal Bond "munis" (bonds)

A debt security issued by a local, county or state government. They are used to fund capital expenditures, including construction of bridges, highways and schools.

Treasury Bond "T-bonds" (bonds)

A debt security issued by the US government. They have maturity windows of 20 or 30 years. Considered to be the safest of all bond investments and virtually risk free. Backed by the full weight of the US government.

Treasury Bill(s) (bonds)

Similar to Treasury Bonds in the respect they are backed by the US. government, with one major difference. These are short-term securities, with maturity occurring within 1 year (sometimes a matter of a few months).

Corporate Bond (bonds)

A debt security issued by a company to raise capital for various needs, such as mergers, acquisitions or expansion. Investors receive interest payment and return of principal upon maturity, just like with "munis" and "T-bonds". They are less volatile than stocks, but not without some risk. (ex: corporation goes out of business). Generally yield a higher rate of return, due to the higher risk involved.

Zero Coupon Bond (bonds)

Debt securities that do not pay an interest rate, but are sold at a discount to their face value. When the bond matures (expires), the investor receives the full face value of the bond.

Junk Bond (bonds)

Rated below investment grade by credit agencies. AKA high-yield bonds, non-investment grade bonds or speculative-grade bonds.

Consumer Price Index

Calculated as a weighted average, the CPI is a measure of inflation that tracks the price changes for a designated group of consumer goods and services. Used by the federal government to monitor the effects of fiscal monetary policy.

Denture(s)

A loan agreement between two parties and secures the lender's claim on the borrower's assets. You will find these in long-term debt scenarios, where corporations need to raise capital without liquidating their equity by issuing shares. Collateral is not used to secure these loans, but rely solely on the creditworthiness of the borrower.

Defined Benefit Plan

A retirement plan (often reserved for corporate level employees) that promises a set or defined monthly payment for life, after retirement. It is calculated using a formula, to include salary and years of service to the company. The employee does not have an individual account, nor do they contribute.

Derivative(s)

A financial instrument, where the success of the investment is tied to the performance of the underlying asset, index or any other security.

Equity

The value of ownership in an asset or business, after backing liabilities. For example, "Home Equity" is the value of the property minus the remaining mortgage. If you buy equity in a company, you are purchasing stock in that budiness.