Money Matters Reference Glossary: Terms to Know

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1 Term Module Definition Adjustable Rate Mortgage (ARM) 4,6 A mortgage for which the interest rate is not fixed; it s adjusted during the life of the loan as interest rate conditions change. American Institute of Philanthropy (AIP) 12 A nationally prominent charity watchdog service that helps donors make informed giving decisions. Amortization Period 6 Gradual elimination of a liability, such as a mortgage, in regular payments over a specified period of time. Annual Percentage Rate (APR) 3,4 A yearly rate of interest that includes fees and costs paid to acquire a loan. Lenders are required by law to disclose the APR. Annuitant 8 The individual designated in the contract to receive annuity payments. Annuity 8 A retirement plan that combines an investment vehicle with an insurance contract. Appraisal 9 A written estimate of the value of property such as a home, furniture, or jewelry. Asset 7,9,11 A resource having monetary value owned by an individual or corporation. Asset Classes 7 Three basic asset classes (stocks, bonds, and cash) that behave differently from one another in various economic and market conditions. ATM Card 1,2 A plastic card used in an Automated Teller Machine (ATM) to withdraw funds from an account, deposit to an account, or transfer between accounts in a bank. Automated Clearing House (ACH) 1,2 An automated electronic network that exchanges funds via Electronic Funds Transfer (EFT) throughout the United States. Over 98% of the nation s financial Automated Teller Machine (ATM) institutions, including the Federal Reserve Banks, belong to the ACH. 1,2 A computer terminal that allows automatic banking transactions at various locations. To obtain money from an ATM machine, an ATM card from your bank and a PIN (Personal Identification Number) are required. Some credit cards may also be used for cash advances at ATMs. Automatic Stay 11 A provision under the U. S. Bankruptcy Code prohibiting creditors from beginning or continuing proceedings for collection of monies owed by an individual who files for bankruptcy. Balance Transfer 3 The process of moving an unpaid credit card debt from one issuer to another. Card issuers sometimes offer teaser rates to encourage balance transfers. They may also charge balance-transfer fees to discourage balances being transferred to another company. Bank 1,2 An establishment for lending, issuing, borrowing, exchanging, and safeguarding money. Bankruptcy 11 A legal declaration of the inability to repay debt. Basis Point 7 Smallest unit of measure in yields or interest rates. One basis point is onehundredth of one percent (0.01%). For example, a bond that begins with a yield of 5.50% and ends with a yield of 5.62% has risen by 12 basis points. Bear Market 7 A prolonged period during which stock prices are falling in value. Beneficiary 8,9 An individual designated to receive the proceeds of an insurance policy, retirement account, annuity, or other asset, or designated in a will to receive an inheritance. Bid Price 7 The price a consumer is willing to pay for a bond on the open market. Billing Cycle 3 The number of days between statement dates. Billing Statement 3 The monthly bill sent by a credit card issuer to a customer. It provides a summary of activity for an account, including balance, purchases, payments, credits, and finance charges. Important changes to a credit card account are often included in smallprint fliers sent with the statement. First Command Educational Foundation Page 1

2 Bond 7 A promise from a corporation or government entity to repay an investor the principal and interest on a specific date. A bond is usually issued for a minimum of one year and pays a fixed interest rate, which means that the interest rate will remain the same for the entire term of the bond. Bond Discount 7 The purchase price when a bond is selling at a price below par (face value). Bond Issuers 7 Corporations and municipal, state, or other government entities engaged in the distribution of bonds. A bond issue is a group of bonds offered by a particular issuer. Bond Premium 7 The purchase price when a bond is selling at a price above par (face value). Bond Rating 7 Evaluation of the creditworthiness of issuers and securities. Borrower 4,6 Individual who applies for and receives funds in the form of a loan and is obligated to repay the loan in full under the terms of the loan. Budget 6 An itemized summary of estimated income (earnings) and expenditures (spending) for a given period of time. It is also referred to as a spending plan. Bull Market 7 A prolonged period during which stock prices are rising in value. Business Plan 10 A document prepared by a company s management team detailing the past, present, and future of the company. It is usually designed to attract capital investment. Call 7 Use of an option to pay off a bond before the maturity date. An early call is considered disadvantageous because it forces an investor to find a new source of income in a lower interest-rate environment. Call Price 7 The set price at which a bond may be redeemed by the issuer. Call Risk 7 The risk faced by the holder of a callable bond that the bond issuer will redeem the bond prior to maturity. Capacity 3 A borrower s ability to make monthly loan payments. Capital 3,10 Assets owned, minus liabilities. Wealth in the form of money or property. Capital Appreciation 7 Increase in value of a capital (long-term) asset. Capital Gain or Loss 7 The increase or decrease in the value of a stock or other asset. A stock capital gain or loss is not realized until the stock is sold. For example, if you purchase 100 shares of ABC stock for $10 per share, and the price increases to $50 per share, you would have a paper (unrealized) gain of $40 per share. If you sold that security at $50, you would then have a realized capital gain of $40 per share. After selling 100 shares, you would incur a realized capital gain of $4,000. -Long-term capital gain refers to capital gains in assets that have been held for more than one year. -Short-term capital gain refers to capital gains in assets that have been held for 1 year or less. Capitalization 7 The sum of a corporation s stock, long-term debt, and retained earnings. Also called market capitalization. Cardholder Agreement 3 A written statement, required by Federal Reserve regulations, that provides the terms and conditions for a credit card account. It must include the Annual Percentage Rate, the monthly minimum payment formula, annual fee if applicable, and the cardholders rights in billing disputes. Cash 7 In mutual fund investing, cash commonly refers to investments in savings instruments such as certificates of deposit or money market accounts. First Command Educational Foundation Page 2

3 Cash Advance Fee 3 A charge by the bank for using credit cards to obtain cash. This fee can be stated as a flat per-transaction fee or a percentage of the amount of the cash advance. For example, the fee may be expressed as: 2%/$10 (the cash advance fee will be 2 percent of the cash advance amount or $10, whichever is greater). Cash Value 9 The cash reserve in a whole life insurance policy; the amount received if the policy is canceled. Charge-Off 1,4 A loan or credit card debt written off as uncollectible from the borrower. The debt, however, remains valid and subject to collection. Charity 12 An institution, organization, or fund established to help the needy. The act of giving to an institution to serve the needy. Check 1,2 Any written document instructing a bank to pay money from a writer s account. Most checks are not paid in cash but by a subtraction from or addition to a depositor s account. Check Register 1,2 Log, book, or journal where each check, debit card transaction, fee, deposit, or credit to an account is posted. Cleared 1,2 A check that has cleared the bank has been paid by the bank and deducted from the account. Closed-End Fund 7 A fund that offers a fixed number of shares that are traded on a stock exchange like stocks. Closing 4,6 The final signing of mortgage documents and the payment of any associated down payments and fees. Collateral 4 Anything used as security for payment of a debt or performance of a contract. Common Stock 4, 7 A security that represents ownership in a public corporation. Conventional Loan 6 Any type of mortgage not secured by a government-sponsored entity such as the Federal Housing Administration or the Department of Veterans Affairs. A very common loan for homebuyers. Convertibility 7 The option of exchanging a bond for a specified amount of stock. Bonds with this feature are called convertible bonds. Co-pay 9 The portion of an expense that is not covered by insurance and must be paid by the insured. Cost Basis 7 Used to calculate capital gains and losses for tax purposes. Generally, it is the portion of an investment on which the owner has already paid taxes. Coupon Rate 7 The specified annual interest rate payable to the bondholder. This interest rate is based on the face value, and is also known as nominal yield. Credit 11 A contractual agreement in which a borrower receives something of value now and agrees to repay the lender at some date in the future. Also, credit can be the borrowing capacity of an individual or institution. Credit Card 1,3 A plastic card with a coded magnetic strip. When signed, the card entitles its bearer to a revolving line of credit, with a credit limit and interest rate set by the card issuer and determined in part by the borrower's income and credit report. Credit History 4 This includes the borrower s name and identification number, the date each credit account was opened, credit limits, current balances, monthly payment amounts, credit/debt repayment history, and payment frequency for the last 12 to 24 months for each credit guarantor. Records are dated with each request or entry. Other information includes, but is not limited to, consumer disputes, criminal convictions, individual or joint liability of accounts, secured accounts, and charge-offs. First Command Educational Foundation Page 3

4 Credit Limit 3 The maximum amount of money that a consumer can borrow from the credit card company. It is based on credit history, amount of existing debt, and use/type of debt. Credit Rating 3 A measurement of the creditworthiness of an individual. Credit ratings are calculated from financial history and current assets and liabilities, which tell a lender the ability of the individual to repay a loan. A poor credit rating indicates a high risk of defaulting on a loan, which leads to higher interest rates. Credit Report 4 A report that contains information about a particular consumer s borrowing habits and money-managing skills. Lenders use it in conjunction with a credit score to determine whether to approve a loan and to set the terms. A person with a good credit report is likely to get a better interest rate than someone with a poor credit report. Credit Risk 7 The possibility that an issuer will default or fail to pay principal and/or interest on outstanding bonds. Credit Score 3,4 A number representing the likelihood that a prospective borrower will fail to repay a loan or other credit over a specific period of time. It is based on information in an individual s credit report and is used to determine whether to extend credit to a borrower and, if so, how much, at what interest rate, and for what time period. Credit Union 1 A members-only non-profit organization similar to a bank. A credit union, in most cases, charges lower interest rates for its services and pays higher interest rates on money deposited than the typical bank. Creditor 11 A person or institution who lends money and to whom funds are owed. Current Yield 7 The expected rate of return calculated by dividing annual income by current price. For example, a $1,000 par bond that pays $70 (7%) but is bought for $800 has a current yield of 8 3/4 percent. (70/800=0.0875) Custodian 7,8,11 An agent, bank, trust company, or other organization that holds and safeguards an individual s assets. These assets may be cash, securities, or virtually anything of value. Death Benefit 9 The amount payable, as stated in a life insurance policy, to the designated beneficiary(ies) upon the death of the insured. It is reduced by any outstanding loans against the policy. Debit Card 1,2 A plastic card with a magnetic strip used to automatically deduct money from a bank account to pay for goods or services. It usually looks just like a credit card, but deducts funds from the account immediately. Debt 11 Something owed, such as money, goods, or services. An obligation or liability to pay or render something to someone else. Debt Financing 10 The acquisition of funds by borrowing. The lenders of the funds become creditors and receive promise of repayment of principal and interest on the debt. Debtor 3,4,11 An individual or institution that owes an obligation to another party. If the debt is in the form of a loan from a financial institution, the debtor is referred to as a borrower. If the debt is in the form of securities, such as bonds, the debtor is referred to as an issuer. Debt-to-Equity Ratio 10 A measure of a company's financial leverage. It indicates what proportion of equity and debt the company is using to finance its assets. Debt-to-Income Ratio 6 Indicator of current financial picture, calculated by dividing monthly debt payments by monthly gross income. First Command Educational Foundation Page 4

5 Deductible 9 The amount that must be paid by the insured for covered losses before the insurance company pays a claim. For example, if your health insurance has a $300 deductible, you would be required to pay medical expenses up to $300 before the insurance company is required to pay any claims. Default 6 Failure to repay a loan according to the terms. Foreclosure can be a result of defaulting on a mortgage loan. It will vary from state to state as to how quickly the foreclosure process will go forward. Deferment 6 Postponement of loan repayment allowed under certain conditions. Defined Benefit Plan 7 An employer-sponsored benefit plan in which a retired employee receives a specific benefit based on salary history and years of service and in which the employer bears the investment risk. Derivative 7 In finance, a security with a price 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 the fluctuations of the underlying asset. Common underlying assets are stocks, bonds, commodities, currencies, interest rates, and market indexes. Discharge 11 To clear the record of an obligation or loan. Discount 7 A bond is usually issued in denominations of $1,000. If interest rates rise, the price of bonds drops. A bond that will be worth $1,000 at maturity may sell for $850. It is selling at a discount. Distribution 7 (1) An investment company payment to its shareholders of dividends or capital gains realized from the sale of securities. The shareholders, not the investment company, pay taxes on the distribution. (2) A withdrawal from a mutual fund account. Diversification 7 The strategy of lowering a portfolio s risk by investing in a variety of securities or other assets that are expected to react differently to changes in market conditions. Dividend 7 Share of company s earnings/profit paid to stockowners. Dividends may be paid in cash or as additional stock. Dividends 9 Refund of excess premiums paid by the owner of a participating life insurance company. Dollar Cost Averaging 7 The method of accumulating assets by investing a fixed number of dollars in securities at regular intervals. Dow Jones Industrial Average ( DOW ) 7 The most widely used indicator of the overall condition of the U.S. stock market. It is composed of 30 widely traded blue chip stocks (large, well-established companies that are leaders in their respective industries). Down Payment 6 A partial payment made at the time of purchase with the balance to be paid later. Earnest Money 4 A deposit from a buyer that binds a contract during the negotiation phase so that the seller cannot sell the contracted item or property to another buyer during that time. It may or may not be refundable if the sale is not completed. Earnings per Share (EPS) 7 The portion of a company s profit allocated to each outstanding share of common stock. Electronic Funds Transfer (EFT) 1,2 The transfer of funds from one bank account to another bank account utilizing the ACH network. Entrepreneur 10 One who organizes, manages, and assumes the risk of a business or enterprise. First Command Educational Foundation Page 5

6 Equal Credit Opportunity Act 5 This act ensures all consumers are given an equal chance to obtain credit. Factors such as income, expenses, debt, and credit history are considerations for creditworthiness. Equity 6,7 The monetary value of a business or property in excess of claims or liens against it. Equity Financing 10 The act of raising money by selling common or preferred stock to individual or institutional investors. In return for the money paid, shareholders receive ownership interests in the corporation. Escrow 6 A financial instrument held by a third party on behalf of two parties in a transaction. The funds are held by the escrow service until it receives the appropriate instructions or until obligations have been fulfilled. Securities, funds, and other assets can be held in escrow. Escrow Account 4,6 An account from which a mortgage company typically pays property taxes and homeowners insurance on behalf of the home or property owner. Estate 9 The total of assets an individual owns at the time of death. The estate is distributed to heirs according to the terms of the person's will or, if there is no will, by court ruling. Eviction 5 To expel a tenant from a dwelling or land by legal process. Exchange Traded Fund 7 Index funds that trade like individual stocks on the major exchanges. (ETF) Expense Ratio 7 Charges that a mutual fund deducts from assets each year to help cover expenses. It is expressed as a percentage of the assets held in the fund. The expense ratio includes fees for managing the assets of the fund, handling administrative requirements such as mailing out prospectuses and annual reports, and satisfying IRS reporting requirements. Face Amount 9 The benefit payable from the base coverage (excluding riders) upon the death of the insured. Face Value (Par) 7 The redemption value of a bond appearing on the face of the certificate. This is the dollar value on which the dividend or interest is figured and the amount to be repaid upon maturity. Par for most bonds is $1,000. Fair Credit Reporting Act (FCRA) 4 This act allows for the prompt correction of errors in a credit account and prevents damage to the credit record while disputes are being settled. Fair Debt Collection Practices Act 4 This act prohibits debt collection agencies from abusive collection practices. It allows consumers to dispute a debt and to stop any unreasonable collection activities, such as calling before 8 a.m. or after 9 p.m., harassment, false statements, threatening action that is not permissible, and other unfair practices. Fair Housing Act 5 This act prohibits discrimination in all stages of the home buying process on the Federal Deposit Insurance Corporation (FDIC) Federal Reserve System basis of race, color, national origin, religion, sex, familial status, or handicap. 1 An independent agency created by Congress in 1933, the FDIC supervises banks, insures deposits up to $250,000, and helps maintain a stable and sound banking system. 1 A government agency establish by Congress to regulate the U.S. monetary and banking system. The 12 Federal Reserve Banks keep money reserves for affiliated banks. FHA Loan 6 A government mortgage insured by the Federal Housing Administration (FHA). First Command Educational Foundation Page 6

7 FICO (Fair Isaac Corporation) 3,4 The FICO score was created by the Fair Isaac Corporation. FICO scores are developed using complex statistical models that associate certain borrower traits with the likelihood of repayment. There are two major credit reporting agencies in the United States that use FICO scores: Equifax TransUnion As of February 14, 2009, Experian, another major credit bureau company, no longer bases their scores on that of Fair Isaac. They will, however, sell you a report with your FICO score. Experian Finance Charge 3 The charge composed of interest costs and other fees for using a credit card. Fixed Rate Mortgage 4,6 Property loan that maintains the same interest rate over the entire term of the loan. Foreclosure 4,6 The legal proceeding in which a bank or other secured creditor sells or repossesses a parcel of real property due to the owner s failure to comply with a loan repayment (default). Full Faith and Credit 7 A phrase indicating that a government entity promises full taxing authority and other revenue streams to ensure repayment of bondholders. This adds to the perceived safety of a bond. Good Faith Estimate 6 The written estimate of the settlement costs that the borrower will likely have to pay at closing. Group Insurance 9 Coverage provided to all members of a group, by means of an agreement between the group representative and the insuring company. The group representative is typically an employer or association to which the covered members belong. The insured individuals do not exercise any control over the agreements between the group representative and the insuring company. Guaranteed Insurability 9 Life insurance coverage that can be added in the future, regardless of the health of the insured. High-Yield ( Junk ) Bond 7 A bond with high credit risk. It also has a high coupon rate so investors will be willing to buy at a higher credit risk. Home Equity 4 The dollar value of a home in excess of the amount owed on it. HUD (U.S. Department of Housing and Urban Development) 5,6 Federal agency responsible for encouraging housing development. HUD oversees and supports housing counseling and renters and buyers legal rights, and interfaces with housing authorities. Identify Theft 3 The use of a victim s personal information, such as name, Social Security number, credit card number, or other identifying information without permission to commit fraud, theft, or other crimes. Index 7 A benchmark to measure financial or economic performance. Index Fund 7 A mutual fund with a portfolio of stocks designed to match the performance of a stock market or sector as measured by an index of selected stocks. Individual Retirement Account (IRA) 8 There are two types of IRAs for individuals: the traditional IRA and the Roth IRA. IRAs are often referred to generically as tax-qualified accounts. First Command Educational Foundation Page 7

8 Inflation none The increase of prices of goods and services in an economy over a period of time, usually measured by the Consumer Price Index and the Producer Price Index. Over time, as the cost of goods and services increase, the value of a dollar will fall because a person can t purchase as much with that dollar as before. Inflation Risk 7 The possibility that an investment will lose purchasing power by not keeping up with the rate of inflation. Initial Public Offering 7 The first sale of a company s stock to the public. (IPO) Insolvent 11 A financial condition in which the sum of debts is greater than the sum of all assets/property. Insurance 9 A protective measure against loss. Insured 9 A person whose interests are protected by an insurance policy. If the insured is an adult, he or she is usually (but not always) the owner of the policy. Interest 1,2,6 A fee paid for the use of money, or paid into a bank account. Interest Rate 3 The cost of borrowing money over a period of time. Interest-Only Loan 6 A mortgage in which the borrower pays only interest for a specified term. At the end of this term, typically five to ten years, the loan is converted to a fully amortizing loan in which both interest and principal are paid. Investment Objective 7 The goal pursued by a fund s management (e.g. capital growth, income, preservation of capital, etc.). Landlord 5 Owner of land, buildings, or dwelling units who rents or leases the property to a tenant. Lease 5,6 A contract granting use or occupation of property during a specified period in exchange for a specified payment. Lender 3,4 Someone who lends money or gives credit in business matters. Lien 11 A claim on the property of another as security for the payment of a legal debt. Limit Order 7 An order placed with a brokerage to buy or sell a set number of shares at a specified price or better. Limit orders allow an investor to limit the length of time an order can remain outstanding before being canceled. Liquidity 1 The ability to convert an investment or other tangible asset into cash, without risk of loss, whenever needed. Loan 4,6 Money lent with interest to be repaid according to specific terms. Loan Fee 6 An expense of borrowing that is deducted proportionately from each loan disbursement. Loan Term 6 The period of time over which a loan is to be repaid. A home loan usually has a loan term of 10 to 30 years. Long-Term Care Insurance 9 An insurance contract that pays benefits if an insured needs long-term medical care in a facility other than a hospital, such as a nursing home. Margin 7 Borrowed money used to purchase securities. This practice is referred to as buying on margin. Market Research 10 Gathering and evaluating data regarding consumer preferences for products and services. Market Survey 10 Gathering information regarding opinions, trends, and competitors. It helps gauge interest in new products and service offerings, and it generates a list of potential customers. First Command Educational Foundation Page 8

9 Market Value 7 The quoted price at which investors buy or sell a share of stock or a bond at a given time. Maturity 7 Date the principal is returned to the bondholder. Maturity Date 8 The date on which a deferred annuity s accumulation period ends and annuity payments begin. Means Test 11 An investigation into the financial well-being of a person to determine the person s eligibility for financial assistance. Minimum Payment 3 The minimum amount a cardholder may pay to keep an account from going into default. Some credit card issuers will set a high minimum if they are uncertain of the cardholder's ability to pay. Most card issuers require a minimum payment of two to four percent of the outstanding balance. Mortality Table 9 A table that outlines how many people in a certain group are expected to be alive at a given age. There are generally separate statistics for males and females, and for people with certain risk factors (e.g. pilots and smokers). A mortality table is used by insurance companies to calculate premiums. Mortgage 4,6 A method of using property (real or personal) as security for the payment of a debt. The term refers to the legal device used for this purpose, but it is also commonly used to refer to the debt secured by the mortgage: the mortgage loan. Mortgage Interest Rate Multiple Listing Service (MLS) 4 The charge for borrowing money for a home or property, usually expressed as an annual percentage rate (APR) applied to the amount owed (the outstanding principal amount). 5 A group of private databases that allows real estate brokers representing sellers under a listing contract to widely share information about properties with real estate brokers representing potential buyers or cooperating with a seller s broker to find a buyer for the property. Mutual Fund 7 An investment company that invests money of its shareholders in a diversified group of securities of other corporations. The investment company acquires money from many individual investors and invests in many types of investment vehicles (stocks, bonds, etc.) more effectively and efficiently than an individual investor could typically do. NASDAQ (National Association of Securities Dealers Automated Quotations) 7 A computerized stock exchange. Trading (buying and selling) is conducted over a network of computers and telephones. Net 6 Amount remaining after all deductions have been made. For example, net income is the actual dollars received after taxes are withheld from gross income. Net Asset Value (NAV) 7 The dollar value of a single mutual fund share, based on the value of the underlying assets of the fund minus its liabilities, divided by the number of outstanding shares. It is calculated at the end of each business day. Net Worth 7 The sum of an investor s assets (e.g., real estate, securities, valuables, and cash) minus the sum of debts (e.g., mortgages, car loans, and credit card balances). Niche 10 A special area of demand for a product or service. Non-Forfeiture Provisions 9 Different ways the policyowner may apply the cash value of a policy if it lapses or is canceled. First Command Educational Foundation Page 9

10 Non-Sufficient Funds (NSF) Check Open-Enrollment Period 1 A check that has been returned by the banking system due to there not being enough money in the bank account. NSF checks result in penalties and/or fees charged by the bank. 9 A defined period of time during which individuals are permitted to enroll in a group insurance plan, either without providing evidence of insurability or with limited questioning about their health. 7 The greatest return for a given level of risk, or the lowest risk for a given rate of return. 7 Security not listed on a stock exchange; usually traded on NASDAQ. Optimal Risk/Return Ratio Over-the-Counter (OTC) Stock Overdraft Protection 1,2 Protects against overdraft fees if an account is overdrawn. Some overdraft protection is like a loan; you will repay the bank for the overdraft amount plus interest. Overdraft protection should only be exercised in an emergency, not used regularly to cover hot checks. Par 7 The value of a bond assigned by the issuer; also called face value. Periodic Rate 3 The interest rate described in reference to a specific amount of time. The monthly periodic rate, for example, is the cost of credit per month; the daily periodic rate is the cost of credit per day. Permanent Insurance 9 Insurance with a required premium structure that ensures adequate reserves are built up for lifetime coverage (generally to age 100). Personal Identification Number (PIN) 1 A code number used in conjunction with a bank card to enable an account holder to use certain computerized systems such as ATMs or cash dispensers. Personal Property 9 In the context of homeowners and renters insurance, all the contents of the household (furniture, jewelry, etc.). Insurance coverage for personal property may be limited to a percentage of coverage on the house. This coverage is generally subject to a deductible. Philanthropy 12 The effort to increase the well-being of others through charitable aid or donations. PITI 4 This acronym refers to the inclusion of principal, interest, taxes, and insurance in a mortgage payment. Planned Giving 12 Refers to a charitable gift which requires the assistance of a professional staff person, a qualified volunteer, or the donor's advisors to complete. In addition, it includes any gift made by a donor in an estate or financial plan. Points 4,6 In real estate, an upfront fee charged by the lender, with each point being equal to 1% of the amount of the loan. It can also refer to each percentage point difference between a mortgage s interest rate and the prime interest rate. Policyowner 9 The person who can exercise all rights under an insurance contract (e.g., changing the beneficiary, surrendering the policy, or taking out a policy loan). The policyowner is frequently, but not always, the insured. Portfolio 7 A listing of all the securities held by an individual, mutual fund, retirement plan, or other entity. Preapproved 3 An offer for a preapproved credit card means that a potential customer has passed a preliminary credit information screening. A credit card company can still turn down the customer it invited if it doesn't like the applicant's credit rating. Preexisting Condition 9 An illness or prediagnosed medical condition for which a person was treated before applying for a life or health insurance policy. A preexisting condition can result in cancellation of the policy if it is not disclosed in the application. First Command Educational Foundation Page 10

11 Preferred Provider Network (PPO) 9 Network of doctors, hospitals, and clinics that have agreed to a pricing structure significantly below the normal pricing structure. Preferred Stock 7 A separate and/or secondary class of stock issued by some corporations. Preferred stock typically has limited or no voting rights, but its holders are paid dividends or receive repayment priority in the event the corporation is liquidated. Premium 9 The amount paid for insurance coverage. Depending on the insurance provider, premiums may be paid monthly, bimonthly, quarterly, semiannually, or annually. Premiums may be structured in various ways. Premium Payment 9 The time during which premiums must be paid for an insurance policy. For many Period Price-to-Book Ratio (P/B ratio) Price-to-Cash Flow Ratio Price-to-Earnings Ratio (P/E ratio) policies, this period lasts as long as the coverage is in force. 7 Calculated by dividing the market price of a company s stock by its per-share book value. Book value is the representation of assets reported on the company s balance sheet at cost. It tells investors approximately how much they are paying for a company s assets. 7 A measure of the market s expectations of a company s future financial health, calculated by dividing the market price of a stock by the cash flow per share. 7 A tool for comparing the prices of different common stocks by assessing how much the market is willing to pay for a share of each company s earnings. It is calculated by dividing the current market price of a stock by the earnings per share. Price-to-Sales Ratio 7 Indicates how much an investor is paying for a revenue stream represented in the ratio by sales. It represents the amount an investor is willing to pay for a dollar generated from a company s operations. Prime Rate 3 The interest rate charged by the federal government to major banks and other lending institutions. Principal 6 The amount owed on a loan at any time. The principal balance may include interest that has accrued over the term of the loan. Proof of Insurability 9 Evidence provided by a statement or other information in an insurance application that the health and other risk factors of the proposed insured are acceptable to the insurance company. Prospectus 7 The Securities Act of 1933 requires this legal document for securities and mutual funds. A mutual fund prospectus contains certain information that helps an investor determine if the fund is an appropriate investment. Such information includes the fund s objectives, information about costs to the investor, etc. Reinstatement 9 The process by which a life insurance company puts a lapsed policy back in force. Renter 5 A person or organization that holds or uses land, a building, or other property owned by another in exchange for payments of rent. Also known as a tenant. Representation 9 Statement of facts, believed by the applicant to be true, upon which the insurer bases its policy issuance decision. Reserves 9 A portion of assets held by the insurance provider to support insurance claims at a later date. Permanent insurance generally has larger reserves, while temporary insurance has smaller reserves. Reserve amounts are governed by state regulations. Responsibility 5 The state of being answerable or accountable for something within one's power, control, or management. Retained Earnings 7 The sum of a corporation s earnings remaining after payment of dividends to reinvest in its core business or to pay debt. Revolving Credit 3 A credit line that can be used up to a certain limit or paid down at any time. First Command Educational Foundation Page 11

12 Rider 9 A contract attached to an insurance policy that provides additional insurance or benefits. Right 5 The power or privilege to which one is justly entitled. Risk 7 Risk in the marketplace is that the value of an investment, over time, may decrease rather than increase and could be worth less when sold than the original amount invested. Risk Factors 9 Hobbies, health and vocational factors, and other considerations that may be hazardous to an individual s life or health, and thus cause higher risk to the insurance provider. Russell Frank Russell Company index designed to track the performance of most major large-cap companies. The Russell 1000 measures the performance of the largest 1,000 securities in the Russell 3000 index. S&P Standard & Poor s 500 provides a broad overall view of the U.S. stock market. The index selects companies based upon their market size, liquidity, and sector. Saving 1 The process of setting aside a portion of current income for future use. Savings Account 1 An account set up to accrue interest, maintain cash for emergencies, and accumulate dollars for short-term necessities and larger planned purchases. Savings and Loan 1 A state- or federally-chartered savings bank. Savings Bank 1 A depository financial institution that accepts consumer deposits and invests these funds primarily in residential mortgages and high-grade securities. Mutual savings banks are owned by their depositors while stock savings banks issue common stock to the public. Secured Credit Card 3 A credit card that a cardholder secures with a savings deposit to ensure payment of the outstanding balance if the cardholder defaults on payments. It is used by people new to credit or trying to rebuild poor credit ratings. Sector Performance 7 In general, how well a segment of the economy (e.g. the steel industry, computer technology, medical research, etc.) is doing. Securities 7 A broad term encompassing various investment instruments that represent ownership of an issuer s assets and debt. Securities include, but are not limited to, stocks, bonds, and negotiable certificates of deposit. Securities and Exchange Commission (SEC) - Debt securities are those in which the investor loans money to an entity (corporation or government) that needs funds for a defined period of time. For example, if an investor purchases a two-year bond from the XYZ Company, he or she is loaning money to the company at a specified interest rate for two years. - Equity securities are those that represent the investor s partial ownership. If an investor has stock of XYZ Company, he or she owns a portion of the company. 7 Created by Congress to regulate the securities markets and protect investors, the SEC is the primary overseer and regulator of the U.S. securities market. Settlement Options 9 Options available to the policyowner regarding how benefits are to be paid. Shareholder 7 Any person or institution that owns shares (stock) in a company. Also called stockholder. Short Sale 7 The sale of a security that one does not own but has borrowed in anticipation of making a profit by paying for it after its price has fallen. First Command Educational Foundation Page 12

13 Situational Analysis 10 A part of the overall organizational strategic planning process that requires research and analysis of internal and external environmental factors, consideration of organizational successes and failures, and the impact of the organization's past and present abilities to reach its goals. Small Business Administration (SBA) 10 An independent agency of the federal government that provides financial assistance to aspiring business owners through business loan programs. Startup Costs 10 Costs incurred to begin a business. They typically include real estate, equipment, technology, supplies, materials, and employees. Stock 7 Ownership of a corporation represented by shares that are a claim on the corporation s earnings and assets. Stock Market 7 A market linking buyers and sellers of securities. Stop Order 7 An order to buy or sell a security when its price reaches a particular point. It ensures a particular entry price, limits the investor s loss, or locks in the profit. Sub-Prime Lending 6 Mortgage lending to buyers with credit challenges or inadequate funds for a down payment. These loans usually are charged a higher interest rate because the lender is taking a greater risk. Supplemental Insurance 9 Any coverage provided in addition to the basic amount. It may be provided within the same policy providing the basic coverage (and is then called a rider ) or provided as a separate policy. Surrender 9 The action by a cash value policyowner to relinquish it for its cash value. Systematic or Market 7 The possibility that stock or bond markets will decrease in value over time. Risk Taxable Equivalent Yield 7 The yield one would need to receive on a taxable bond to equal the tax-free yield of a municipal bond. Tax-Deductible 12 Contributions to a charity that can be deducted on a federal income tax return. Tax-Deferred Growth 8 Earnings that are not taxed until some future date, usually when the money is withdrawn from the account. Annuities feature tax-deferred growth, which is different from tax-qualified accounts. Tax-Exempt 12 Not subject to taxation, such as the capital or income of a philanthropic organization. Tax-Qualified Plan 8 Retirement plans that receive special tax privileges such as tax-deferred growth, pretax payroll deductions, etc. Teaser Rate 3 Often called the introductory rate, it is a below-market interest rate offered to entice customers to switch credit cards or lenders. It usually applies only to the balance transferred and normally lasts for only a few months. Temporary Insurance 9 Also referred to as term insurance. Life insurance that remains in effect only for a specified period of time, normally less than a full lifetime (e.g., 10-year level term or decreasing term to age 65). Truth in Lending Act 4 This act requires credit grantors to provide the annual percentage rate (APR) of any loan prior to signing. The APR reflects the true cost of the credit. Underwriting 9 The process the insurance provider goes through before accepting a policy application to identify the potential risks of insuring an individual. Unsecured Credit Card 3 A credit card that does not require a bank deposit. It usually comes with fewer restrictions and better terms. Unsecured Debt 11 A loan not secured by an underlying asset or collateral. First Command Educational Foundation Page 13

14 VA Loan 6 A mortgage loan program established by the U.S. Department of Veterans Affairs to help veterans and their families obtain home financing. VA loans offer up to 100% financing on the value of a home. Variable Interest none Rate of interest on a loan that is tied to a stated index and changes as the index changes. Variable Interest Rate 3,4,6 An interest rate that moves up or down periodically, based on changes in the prime rate. Voided Check 1,2 A check with the word void printed across the front by the owner. A check may be voided because an error was made while filling it out or because it is required to set up an automatic bill payment or direct deposit plan. Volatility 7 The up-and-down fluctuations in the price of an investment instrument. The higher the volatility, the greater the difference between the peaks and valleys. Will 9 A document that, when signed and witnessed by appropriate individual(s), gives legal effect to the wishes of an individual to provide for the disposal of his or her estate upon death. Yield 7 The interest paid by a company on its securities. For a bond, this may be expressed as a percentage of the face value (called nominal yield or coupon rate ) or as a percentage of the actual price the investor paid for the bond. Yield-to-Maturity 7 The fully compounded rate of return paid out over a bond's life, from purchase date to maturity, including appreciation and earnings. It is the most comprehensive measure of yield. Zero-Coupon Bond 7 A bond sold at discount and paying no interest, but instead paying the holder the face value at maturity. A zero-coupon bond stated at $1,000 but sold for $600 would yield the holder a total of $1,000 at maturity. The $400 the investor makes would be treated as interest. First Command Educational Foundation Page 14