GLOSSARY
A | B | C

A

Above par (premium)

Said of a security (generally a bond) that is sold above its nominal value. The bond is therefore said to be sold at a premium.

Accrued interest

Interest earned, though not yet payable on bonds or debentures, since the last interest payment date.

Administrator

Person responsible for the safekeeping and management of assets belonging to a third party. As the case may be, an administrator can be referred to as an estate executor (liquidator under the Civil Code of Quebec), a trustee in bankruptcy or a fiduciary.

Agent

A securities broker acts as an agent on behalf of a buyer or seller when the securities traded in a transaction are not held by him.

Alpha

Measurement of the specific (residual) risk of a mutual fund compared with the market. A positive alpha value indicates added value that has benefited the investor who accepted a certain risk rather than simply opting for the return on the market. Therefore, alpha measures the value added by the fund manager.

Annual report

Official report issued by a public corporation to its shareholders containing information about the corporation's financial position. The report must be audited by independent accountants.

Annuitant

Person who receives an annuity.

Annuity

A periodic payment from an invested lump sum of principal, retirement contributions or insurance premiums.

Ask price

The lowest price at which a seller is willing to sell a financial instrument listed on an exchange.

Asset

Anything owned by a corporation or an individual, including anything owed to that corporation or individual.

Asset allocation

Establishing or reviewing an investment portfolio's asset mix.

90 years annuity certain

Annuity that pays a fixed annual amount until the annuitant reaches the age of 90.

B

Balance sheet

A financial statement that shows a corporation's assets, liabilities and shareholders' equity on a specific date.

Balanced fund (Diversified fund)

The objective of this mutual fund is to build a balanced portfolio made up of bonds and shares in proportions that vary based on market conditions and the forecasts of the fund managers.

Bank rate

Rate at which the Bank of Canada makes short-term advances to chartered banks and other financial institutions. The prime rate set by financial institutions is based on the bank rate.

Banker's acceptance

Type of short-term commercial paper issued by a corporation and guaranteed by a bank. This guarantee translates into higher issue prices and therefore lower returns. Banker's acceptances are widely used in import/export transactions and constitute a source of corporate financing.

Basis point

Expression generally used to refer to differences in bond yields. One basis point is equal to .01%. Therefore, if bond X has a yield of 8.50% and bond Y's yield is 8.75%, the difference is 25 basis points.

Beta

Measure of a fund's volatility relative to the market. The beta takes into consideration the fund's standard deviation and correlation coefficient compared with its reference index. If a fund has the same volatility as the index, it has a beta of 1. Similarly, if the fund has a standard deviation above the index, it has a beta above 1. And a fund has a beta under 1 if it is less volatile than the index.

Beta coefficient

See beta.

Bid price

The highest price that a prospective buyer is willing to pay for a financial instrument listed on an exchange.

Blue-chip stock

Usually refers to top-quality shares.

Board of Directors

Group elected by the shareholders of a corporation that acts on their behalf and is responsible for the corporation's management. Directors are generally elected each year at the annual meeting.

Bond

Debt instrument issued by corporations, governments and government agencies. The bond issuer commits to paying interest for the duration of the bond on specific dates and to repaying the principal amount at maturity.

Bond fund

Mutual fund that invests primarily in government and corporate bonds.

Book value

The initial cost of an investment plus reinvested income. Book value is often used to calculate the foreign content portion of a registered plan.

Brokerage fee

Commission received by a broker who buys and sells securities on behalf of a client.

Business day

Every day of the year except Saturdays, Sundays and holidays.

Buying on margin

Buying securities in part with borrowed money.

C

Callable bond (redeemable bond)

Bond that the issuer may redeem prior to maturity at the price stipulated in the issuing contract.

Canada Savings Bond (CSB)

CSBs are issued each year by the federal government. They can be cashed at any time at par value.

Canadian equity fund

The objective of this fund is to provide long-term capital appreciation by investing mainly in common shares of Canadian corporations.

Capital (in economics)

Capital includes the machinery, factories and inventory required to manufacture products, namely capital property.

Capital (in finance)

Money or other property used to carry out business transactions. For an investor, capital is the total amount invested in securities and other assets, plus cash.

Capital depletion

The risk of outliving your capital. Rising life expectancy makes this an important factor to bear in mind. If you fail to safeguard your investments, you may not earn sufficient returns to cover your expenses throughout your retirement.

Capital gain or loss

A gain or loss resulting from the disposal of an asset that may have tax consequences depending on the nature of the asset sold.

Capital loss

See capital gain or loss.

Capital market

Market consisting of persons, organizations and financial products where capital funds are traded.

Capital stock

The total number of preferred and common stock representing ownership in a corporation.

Capitalization

Method of earning income on the previous portion of investment income through reinvestment. The final value of the investment is made up of the initial investment amount plus the reinvested income.

Cash and cash equivalents

Assets that are readily convertible to cash, such as accounts receivable, short-term commercial paper and short-term bonds and notes issued by municipalities and corporations.

Central bank

Agency created by the government of a country in order to regulate its currency and monetary policy at the national and international level. In Canada, central banking is a function of the Bank of Canada; in the U.S., of the Federal Reserve Board.

Certificate

A document issued to the purchaser of a stock, bond or other security as proof of ownership.

Certificate of deposit

Fixed-income debt instrument issued by most chartered banks, generally in minimum denominations of $1,000, for terms ranging from one to six years.

Commercial paper

Short-term debt instrument (ranging from a few days to one year) issued by a corporation. Commercial paper is generally not secured by the corporation's assets.

Common share

Unit of participation or ownership in a corporation that also carries a right to vote.

Compound interest

Interest earned periodically that is added to the borrowed principal. The interest is calculated both on the borrowed principal and on the accumulated interest. In fact, compound interest is interest added to interest previously earned.

Consumer price index (CPI)

Measure of change in the cost of living for consumers. The CPI highlights price increases (inflation).

Convertible

Said of a bond, debenture or preferred share that is usually exchangeable for one or more common shares of the same corporation.

Convertible debenture

A debenture that is exchangeable for common shares according to specified conditions.

Corporation

Type of company, created under federal or provincial legislation, which is legally separate and distinct from its shareholders. The shareholders' responsibility for the corporation's debts cannot exceed their invested capital.

Correlation coefficient

Relationship between two variables. The correlation coefficient measures the degree to which two variables are related. The measure is often used to determine if mutual fund returns vary based on market conditions or on other fund categories. Portfolio diversification is enhanced where funds are not highly correlated.

Coupon

Detachable portion of a bond certificate entitling the holder to receive a specified amount in interest when detached and presented at a bank as of the maturity date.

Coupon bond (zero coupon bond)

A high-quality bond, generally issued by a government, with detachable coupons. Detached coupons and coupon bonds are therefore traded separately at a deep discount from their face value.

Credit rating

Evaluation of an individual's or a corporation's credit history and capability of repaying obligations.

Current asset

Cash and other assets that can be converted into cash in the normal course of business, usually within a year.

Current liability

Amount coming due within a year; for example, accounts payable.

Current yield

Annual return an investor will receive from a security bought at market price. It is equal to annual income from an investment divided by the market price. Sometimes called return on investment (ROI).

Custodian

Financial institution, generally a bank or trust company, that keeps custody of an investment company's securities and cash.

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