Accretion is the gradual process of growth by the addition of new parts. A company is said to be accretive if it increases in size either through organic growth or by acquisitions. An acquisition is said to be accretive if it adds to earnings per share; if the acquisition adds more value than it costs. Accretive can also refer to an increase in the notional principal amount of a financial instrument over its life. For example, the accumulation of capital gains on a bond, bought at a discount, in anticipation of receipt of its full par value at maturity. The opposite of amortization.
Abbreviation for American Depositary Receipt. The form in which shares of foreign companies are usually traded on U.S. stock markets. ADRs are issued by U.S. banks and represent a bundle of shares of a foreign company held in custody overseas. Trading in ADRs rather than the underlying shares reduces administration and trading costs, both for companies and for investors.
Algorithmic trading is a term which refers to the use of computers and advanced mathematics to make decisions about the timing, price and quantity of a market order. It is widely used by banks, hedge funds, pension funds and mutual funds. Large trades are broken down into smaller ones to minimize market impact and risk. Trades are made without human intervention using information received electronically. Millions of orders can be executed each second and dozens of public and private exchanges can be scanned simultaneously. As of 2009 algorithmic trading made up nearly 30 percent of stock trading volume in the U.S.
A mortgage loan on which interest rates are adjusted at regular intervals according to predetermined criteria. An ARM’s interest rate is tied to an objective, published interest rate index.
A bond issued by two types of entities—1) Government Sponsored Enterprises (GSEs), usually federally-chartered but privately-owned corporations; and 2) Federal Government agencies which may issue or guarantee these bonds—to finance activities related to public purposes, such as increasing home ownership or providing agricultural assistance. Agency bonds are issued in a variety of structures, coupon rates and maturities. Each GSE and Federal agency issues its own bonds, with sizes and terms appropriate to the needs and purposes of the financing.
Liquidation of a debt through installment payments.
A financial term that refers to a series of equal payments that are usually made at regular intervals for a set amount of years or for the person’s lifetime.
In a broad sense lots of payments are set up in annuity, including mortgages, regular payments in to a savings account, and others, but the term is generally used in regards to retirement funds or life insurance.
Investments in annuity accounts are tax deferred, meaning they are allowed to grow tax free. Tax is only charged when the account holder withdraws any funds or starts to get paid at the regular intervals agreed on.
Annuity investments are considered low in risk, but also low in return. They are generally used for convenience, rather than to make money. They can be compared to savings accounts.
The action of profiting from the correction of price or yield anomalies and differentials in similar securities in different markets. It involves taking a position in one market and an offsetting position in another. As prices or yields move back into line positions may be profitably closed out. For example, a stock and its equivalent futures contract may be quoted at different prices; the cheaper one can be bought and sold to the higher priced market. An arbitrageur or arb is an individual or institution practicing arbitrage.
The interest rate structure which exists when long-term interest rates exceed short-term interest rates.
The price at which a seller offers to sell a security.
The return an investor would receive on a Treasury security if he or she paid the ask price.
In a broad sense an asset is simply another word for an item that is owned by somebody. Anything that is owned by a business, company, individual or government that can be sold to make cash is considered an asset. Your house is a valuable asset; your car is an asset although it loses its value. In a strict sense even your jogging shorts are an asset, in that you could probably sell them or use the material in some profitable manner. Generally though, assets refer to things that are actually worth selling as part of a business. For example a business in liquidation may “sell its assets” which may be its stock, machinery, buildings etc.
It’s not just tangible items that are considered assets, but intangible assets as well. These may include stocks and shares, contracts, agreements, futures, accounts and so on. In today’s age knowledge is a huge asset and can be sold, in information products or on your job CV.
In business and accounting there are several types of assets. Current Assets are a business’ cash, stock or other items that are expected to convert in to cash within a year. For example a shopkeeper’s till money and the products on the shelves are current assets.
Fixed Assets are assets that tend to be fixed in position and are needed for long term profit making, such as buildings, warehouses and machinery.
Other things that are considered assets are long term investments and things like copyrights and patents because they can be sold if a business venture goes bust.
For individuals assets that are really considered to be worth money are houses, vehicles, expensive jewelry and electronics. If bailiffs are sent to take items to cover somebody’s debts they will go straight to TV’s and other electronics.
is the overall term that describes how an investor spreads their cash for investing throughout different types of investment, such as savings accounts, stocks and bonds. The main purpose for people that actively look to asset allocation is to devise a strategy so their total investments are safe yet will make a reasonably return.
For example putting all of your money in a savings account is safe, but returns are low. Using other investments working together minimizes the risk and allow for more consistent returns.
Asset-backed securities, called ABS, are bonds or notes backed by financial assets other than residential or commercial mortgages—an investor is purchasing an interest in pools of loans or other financial assets. Typically these assets consist of receivables other than mortgage loans, such as credit card receivables, auto loans and consumer loans. As the underlying loans are paid off by the borrowers, the investors in ABS receive payments of interest and principal over time. The ABS market is for institutional investors and is not suitable for individual investors.
A category or type of investment which has similar characteristics and behaves similarly when subject to particular market forces. Broad financial asset classes are stocks (or equity), bonds (fixed income) and cash. Real estate, precious metals and commodities can also be viewed as asset classes.
Floating-rate tax-exempt bonds where the rate is periodically reset by a Dutch auction.
A separate state or local governmental issuer expressly created to issue bonds or run an enterprise, or to do both. Certain authorities issue bonds on their own behalf, such as transportation or power authorities. Authorities that issue bonds on the behalf of qualified nongovernmental issuers include health facilities and industrial development authorities.
Average annual yield is the average yearly income on an investment, such as a bond, expressed in percentage terms. To calculate average annual yield, add all the income from an investment and divide that total amount by the number of years in which the money was invested. For example, if you receive $10 interest on a $1,000 bond each year for ten years, the average annual yield is 1% ($10 ÷ $1,000 = 0.01 or 1%).