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Adjusted Gross Income (AGI)

An interim calculation in the computation of income tax liability. It is computed by subtracting certain allowable adjustments from gross income.

 

Administrator

A person appointed by the court to settle an estate when there is no will.


After-Tax Return

The return from an investment after the effect of taxes has been taken into account.


Aggressive Growth Fund

A mutual fund whose primary investment objective is substantial capital gains.


Alternative Minimum Tax

A method of calculating income tax that disallows certain deductions, credits, and exclusions. This was intended to ensure that individuals, trusts, and estates that benefit from tax preferences do not escape all federal income tax liability. People must calculate their taxes both ways and pay the greater of the two.


Annuity

An insurance-based contract that provides future payments at regular intervals in exchange for current premiums.


Asset

Anything owned that has monetary value.


Asset Allocation

The process of repositioning assets within a portfolio to maximize return for a given level of risk. This process is usually done using the historical performance of the asset classes withinsophisticated mathematical models.


Asset Class

A category of investments with similar characteristics.


Audit

The examination of the accounting and financial documents of a firm by an objective professional. The audit is done to determine the records' accuracy, consistency, and conformity to legal and accounting principles.

 

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Balanced Mutual Fund

A mutual fund whose objective is a balance of stocks and bonds. Such funds tend to be less volatile than stock-only funds.


Bear Market

When the stock market appears to be declining overall, it is said to be a bear market.


Beneficiary

A person named in a life insurance policy, annuity, will, trust, or other agreement to receive a financial benefit upon the death of the owner. A beneficiary can be an individual, company, organization, and so on.


Blue Chip Stock

The common stock of a company with a long history of profitability and consistent dividend payments.


Bond

A bond is evidence of a debt in which the issuer promises to pay the bondholders a specified amount of interest and to repay the principal at maturity. Bonds are usually issued in multiples of $1,000.


Book Value

The net value of a company's assets, less its liabilities and the liquidation price of its preferred issues. The net asset value divided by the number of shares of common stock outstanding equals thebook value per share, which may be higher or lower than the stock's market value.


Bull Market

When the stock market appears to be advancing overall, it is said to be a bull market.


Buy-Sell Agreement

A buy-sell agreement is an arrangement between two or more parties that obligates one party to buy the business and another party to sell the business upon the death, disability, or retirement of one of the owners.

 

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Capital Gain or Loss

The difference between the sales price and the purchase price of a capital asset. When that difference is positive, the difference is referred to as a capital gain. When the difference is negative, it is a capital loss.


Cash Equivalents

Short-term investments, such as U.S. Treasury securities, certificates of deposit, and money market fund shares, that can be readily converted into cash.


Cash Surrender Value

The amount that an insurance policyholder is entitled to receive when he or she discontinues coverage. Policyholders are usually able to borrow against the surrender value of a policy from the insurance company. Loans that are not repaid will reduce the policy's death benefit.


Certified Financial Planner® Practitioner

A credential granted by the Certified Financial Planner Board of Standards, Inc. (Denver, CO) to individuals who complete a comprehensive curriculum in financial planning and ethics. CFP®, CERTIFIED FINANCIAL PLANNER® and federally registered CFP (with flame logo)® are certification marks owned by the Certified Financial Planner Board of Standards. These marks are awarded to individuals who successfully complete the CFP Board's initial and ongoing certification.


Certified Public Accountant (CPA)

A professional license granted by a state board of accountancy to an individual who has passed the Uniform CPA Examination (administered by the American Institute of Certified Public Accountants) and has fulfilled that state's educational and professional experience requirements for certification.


Charitable Lead Trust

A trust established for the benefit of a charitable organization under which the charitable organization receives income from an asset for a set number of years or for the trustor's lifetime. Upon the termination of the trust, the asset reverts to the trustor or to his or her designated heirs. This type of trust can reduce estate taxes and allows the trustor's heirs to retain control of the assets.


Charitable Remainder Trust

A trust established for the benefit of a charitable organization under which the trustor receives income from an asset for a set number of years or for the trustor's lifetime. Upon the termination of the trust, the asset reverts to the charitable organization. The trustor receives a charitable contribution deduction in the year in which the trust is established, and the assets placed in the trust are exempt from capital gains tax.


Chartered Financial Consultant (ChFC)

A professional financial planning designation granted by The American College (Bryn Mawr, PA) to individuals who complete a comprehensive curriculum in financial planning. Prerequisites include passing a series of written examinations, meeting specified experience requirements and maintaining ethical standards. The curriculum encompasses wealth accumulation, risk management, income taxation, planning for retirement needs, investments, estate and succession planning.


Chartered Life Underwriter (CLU)

A professional designation granted by The American College to individuals who complete a comprehensive curriculum focused primarily on risk management. Prerequisites include passing a series of written examinations, meeting specified experience requirements, and maintaining ethical standards. The curriculum encompasses insurance and financial planning, income taxation, individual life insurance, life insurance law, estate and succession planning, and planning for business owners and professionals.


COBRA

The Consolidated Omnibus Budget Reconciliation Act is a federal law requiring employers with more than 20 employees to offer terminated or retired employees the opportunity to continue their health insurance coverage for 18 months at the employee's expense. Coverage may be extended to the employee's dependents for 36 months in the case of divorce or death of the employee.


Coinsurance or Co-Payment

The amount an insured person must pay for a covered medical and/or dental expense if his or her insurance doesn't provide 100 percent coverage.


Commodities

The generic term for goods such as grains, foodstuffs, livestock, oils, and metals which are traded on national exchanges. These exchanges deal in both "spot" trading (for current delivery) and "futures" trading (for delivery in future months).


Common Stock

A unit of ownership in a corporation. Common stockholders participate in the corporation's profits or losses by receiving dividends and by capital gains or losses in the stock's share price.


Community Property

State laws vary, but generally all property acquired during a marriage - excluding property one spouse receives from a will, inheritance, or gift - is considered community property, and each partner is entitled to one half. This includes debt accumulated. There are currently nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.


Compound Interest

Interest that is computed on the principal and on the accrued interest. Compound interest may be computed continuously, daily, monthly, quarterly, semiannually, or annually.


Consumer Price Index

The U.S. Department of Labor's main indicator of inflation. The Consumer Price Index is calculated each month from the cost of some 400 retail items in urban areas throughout the United States.

 

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Deduction

An amount that can be subtracted from gross income, from a gross estate, or from a gift, thereby lowering the amount on which tax is assessed.


Defined Benefit Plan

A qualified retirement plan under which a retiring employee will receive a guaranteed retirement fund, usually payable in installments. Annual contributions may be made to the plan by the employer at the level needed to fund the benefit. The annual contributions are limited to a specified amount, indexed for inflation.


Defined Contribution Plan

A retirement plan under which the annual contributions made by the employer or employee are generally stated as a fixed percentage of the employee's compensation or company profits. The amount of retirement benefits is not guaranteed; rather, it depends upon the investment performance of the employee's account.


Diversification

Investing in different companies, industries, or asset classes. Diversification may also mean the participation of a large corporation in a wide range of business activities.


Dividend

A pro rata portion of earnings distributed in cash by a corporation to its stockholders. In preferred stock, dividends are usually fixed; with common shares, dividends may vary with the fortunes of the company.


Dollar Cost Averaging

A system of investing in which the investor buys a fixed dollar amount of securities at regular intervals. The investor thus buys more shares when the price is low and fewer shares when it rises, and the average cost per share is lower than the average price per share. This strategy does not protect against loss in declining markets and involves continuous investments, regardless of fluctuating price levels.

 

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Efficient Frontier

A statistical result from the analysis of the risk and return for a given set of assets that indicates the balance of assets that may, under certain assumptions, achieve the best return for a given level of risk.


Employer-Sponsored Retirement Plan

A tax-favored retirement plan that is sponsored by an employer. Among the more common employer-sponsored retirement plans are 401(k) plans, 403(b) plans, simplified employee pension plans, and profit-sharing plans.


Equity

The value of a person's ownership in real property or securities; the market value of a property or business, less all claims and liens upon it.


ERISA

The Employee Retirement Income Security Act is a federal law covering all aspects of employee retirement plans. If employers provide plans, they must be adequately funded and provide for vesting, survivor's rights, and disclosures.


ESOP (employee stock ownership plan)

A defined contribution retirement plan in which company contributions must be invested primarily in qualifying employer securities.


Estate Conservation

Activities coordinated to provide for the orderly and cost-effective distribution of an individual's assets at the time of his or her death. Estate conservation often includes wills and trusts.


Estate Tax

Upon the death of a decedent, federal and state governments impose taxes on the value of the estate left to others (with limitations).


Executive Bonus Plan

The employer pays for a benefit that is owned by the executive. The bonus could take the form of cash, automobiles, life insurance, or other items of value to the executive.


Executor

A person named by the probate courts or the will to carry out the directions and requests of the decedent.

 

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Fixed Income

Income from investments such as CDs, Social Security benefits, pension benefits, some annuities, or most bonds that is the same every month.


401(k) Plan

A defined contribution plan that may be established by a company for retirement. Employees may allocate a portion of their salaries into this plan, and contributions are excluded from their income for tax purposes (with limitations). Contributions and earnings will compound tax deferred. Withdrawals from a 401(k) plan are taxed as ordinary income, and may be subject to an additional 10 percent federal tax penalty if withdrawn prior to age 59 1⁄2.


403(b) Plan

A defined contribution plan that may be established by a nonprofit organization or school for retirement. Employees may allocate a portion of their salaries into this plan, and contributions are excluded from their income for tax purposes (with limitations). Contributions and earnings will compound tax deferred. Withdrawals from a 403(b) plan are taxed as ordinary income, and may besubject to an additional 10 percent federal tax penalty if withdrawn prior to age 59 1⁄2.


Fundamental Analysis

An approach to the stock market in which specific factors - such as the price-to-earnings ratio, yield, or return on equity - are used to determine what stock may be favorable for investment.

 

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Gift Taxes

A federal tax levied on the transfer of property as a gift. This tax is paid by the donor. The first $12,000 a year from a donor to each recipient is exempt from tax. Most states also impose a gift tax. The gift tax exemption is indexed annually for inflation.

 

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Holographic Will

A will entirely in the handwriting of the testator. Without witnesses, holographic wills are valid and enforceable only in some states.

 

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Index

A calculation that uses a selection of stocks or bonds to gauge a certain market. The Dow Jones Industrial Average, for example, is an index of 30 large industrial companies on the New York Stock Exchange.


Individual Retirement Account (IRA)

Contributions to a traditional IRA are deductible from earned income in the calculation of federal and state income taxes if the taxpayer meets certain requirements. The earnings accumulate tax deferred until withdrawn, and then they are taxed as ordinary income. Individuals not eligible to make deductible contributions may make nondeductible contributions, the earnings on which would be tax deferred. The maximum amount a single person can contribute is $5,500. The maximum amount a married couple filing jointly can contribute is $11,000. If a person is 50 years or older or, they can contribute an additional "Catch-Up Contribution" of $1,000, making a maximum of $6,500 annual contribution.


Inflation

An increase in the price of products and services over time. The government's main measure of inflation is the Consumer Price Index.


Intestate

The condition of an estate left by a decedent without a valid will. State law then determines who inherits the property or serves as guardian for any minor children.


Investment Advisor Representative (IAR)

Depending on the nature of the relationship, an Investment Advisor Representative (IAR) charges fees calculated as a percentage (e.g., 1%) of assets under management on an annual basis, an hourly basis or on a "flat fee" basis. The advisor is a representative of a Registered Investment Advisor (RIA) who is registered with the Securities and Exchange Commission (SEC) if it manages more than $25 Million, or is registered with an individual state if it manages less than $25 Million. In general, under U.S. law, investment advisors owe their clients an ongoing fiduciary duty to provide full and complete disclosure of all fees, conflicts of interest, and if so authorized, to exercise discretion in selecting investments with only their clients' best interests in mind.


Investment Category

A broad class of assets with similar characteristics. The five investment categories include cash equivalents, fixed principal, equity, debt, and tangibles.


Irrevocable Trust

A trust that may not be modified or terminated by the trustor after its creation.

 

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Joint and Survivor Annuity

Most pension plans must offer this form of pension plan payout that pays over the life of the retiree and his or her spouse after the retiree dies. The retiree and his or her spouse must specifically choose not to accept this payment form.


Joint Tenancy

Co-ownership of property by two or more people in which the survivor(s) automatically assumes ownership of a decedent's interest.


Jointly Held Property

Property owned by two or more persons under joint tenancy, tenancy in common, or, in some states, community property.

 

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Keogh Plan

This retirement plan, named for Eugene Keogh, is designed for self-employed individuals. Up to 25% (max. $49,000 for 2009) of net self-employed earnings may be contributed into the plan.

 

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Liability

Any claim against the assets of a person or corporation: accounts payable, wages, and salaries payable, dividends declared payable, accrued taxes payable, and fixed or long-term obligations such as mortgages, debentures, and bank loans.


Limited Partnership

Limited partnerships pool the money of investors to develop or purchase income-producing properties. When the partnership subsequently receives income from these properties, it distributes the income to its investors as dividend payments.


Liquidity

The ease with which an asset or security can be converted into cash without loss of principal.


Living Trust

A trust created by a person during his or her lifetime.


Lump-Sum Distribution

The disbursement of the entire value of a profit-sharing plan, pension plan, annuity, or similar account to the account owner or beneficiary. Lump-sum distributions may be rolled over into another tax-deferred account.

 

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Marginal Tax Bracket

The range of taxable income that is taxable at a certain rate. Currently, there are six marginal tax brackets: 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, and 35 percent.


Marital Deduction

A provision of the tax codes that allows all assets of a deceased spouse to pass to the surviving spouse free of estate taxes. This provision is also referred to as the unlimited marital deduction.


Money Market Fund

A mutual fund that specializes in investing in short-term securities and that tries to maintain a constant net asset value of $1.


Municipal Bond

A debt security issued by municipalities. The income from municipal bonds is usually exempt from federal income taxes. In many states, it is also exempt from state income taxes in the state in which the municipal bond is issued.


Municipal Bond Fund

A mutual fund that specializes in investing in municipal bonds.


Mutual Fund

A collection of stocks, bonds, or other securities purchased and managed by an investment company with funds from a group of investors.

 

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Net Asset Value

The price at which a mutual fund sells or redeems its shares. The net asset value is calculated by dividing the net market value of the fund's assets by the number of outstanding shares.

 

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Pooled Income Fund

A trust created by a charitable organization that combines the contributions of several donors and distributes income to those donors based on the earnings of the trust. The trust is managed by the charitable organization, and contributions are partially deductible for income tax purposes.


Portfolio

All the investments held by an individual or a mutual fund.


Preferred Stock

A class of stock with claim to a company's earnings, before payment can be made on the common stock, and that is usually entitled to priority over common stock if the company liquidates. Generally, preferred stocks pay dividends at a fixed rate.


Prenuptial Agreement

A legal agreement arranged before marriage stating who owns property acquired before marriage and during marriage and how property will be divided in the event of divorce. ERISA benefits are not affected by prenuptial agreements.


Price/Earnings Ratio (P/E Ratio)

The market price of a stock divided by the company's annual earnings per share. Because the P/E ratio is a widely regarded yardstick for investors, it often appears with stock price quotations.


Principal

In a security, the principal is the amount of money that is invested, excluding earnings. In a debt instrument such as a bond, it is the face amount.


Probate

The court-supervised process in which a decedent's estate is settled and distributed.


Profit-Sharing Plan

An agreement under which employees share in the profits of their employer. The company makes annual contributions to the employees' accounts. These funds usually accumulate tax deferred until the employee retires or leaves the company.


Prospectus

A formal written offer to sell securities (filed with the SEC) that sets forth a plan for a (proposed) business enterprise; a prospectus should contain the facts that an investor needs to make an informed decision.

 

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Qualified Domestic Relations Order (QDRO)

At the time of divorce, this order would be issued by a state domestic relations court and would require that an employee's ERISA retirement plan accrued benefits be divided between the employee and the spouse.


Qualified Retirement Plan

A pension, profit-sharing, or qualified savings plan that is established by an employer for the benefit of the employees. These plans must be established in conformity with IRS rules. Contributions accumulate tax deferred until withdrawn and are deductible to the employer as a current business expense.

 

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Registered Investment Advisor (RIA)

A Registered Investment Advisor is licensed through their state or the SEC to provide investment advice for a fee. That includes: Collecting a fee for giving hourly advice, collecting fees for managing portfolios (e.g. 1% annually of the portfolio value), or collecting fees for a financial plan that includes investment advice (Note--if the plan does not include investment advice, you don’t need to be a registered investment advisor. However, your state may require a special license to give fee-based insurance or estate planning advice). In many cases, a registered investment advisor (RIA) is a corporation or partnership while the person actually providing the advice is an investment advisor representative (IAR) of the advisor organization.


Revocable Trust

A trust in which the creator reserves the right to modify or terminate the trust.


Risk

The chance that an investor will lose all or part of an investment.


Risk-Averse

Refers to the assumption that rational investors will choose the security with the least risk if they can maintain the same return. As the level of risk goes up, so must the expected return on the investment.


Rollover

A method by which an individual can transfer the assets from one retirement program to another without the recognition of income for tax purposes. The requirements for a rollover depend on the type of program from which the distribution is made and the type of program receiving the distribution.


Roth IRA

A nondeductible IRA that allows tax-free withdrawals when certain conditions are met. Income and contribution limits apply. The maximum amount a single person can contribute is $5,500. The maximum amount a married couple filing jointly can contribute is $11,000. If a person is 50 years or older or, they can contribute an additional "Catch-Up Contribution" of $1,000, making a maximum of $6,500 annual contribution.

 

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Security

Evidence of an investment, either in direct ownership (as with stocks), creditorship (as with bonds), or indirect ownership (as with options).


Series 6 License

The Investment Company Products/Variable Life Contracts Representative License, commonly referred to as the Series 6, registers an individual to transact a limited set of securities: mutual funds, closed-end funds on the initial offering only, unit investment trusts, variable annuities, variable life insurance and municipal fund securities. A Series 6 registered individual cannot transact in corporate securities, direct participation programs (DPPs), or option products.


Series 7 License

The General Securities Representative License, commonly referred to as the Series 7, registers an individual as a Registered Representative of a broker-dealer in the United States. The Series 7 license is the most comprehensive of several securities licenses that permit an agent to communicate with retail investors and entitles the holder to sell all types of securities products with the exception of commodities and futures.


Series 24 License

The General Securities Principal License, commonly referred to as the Series 24, entitles the holder to supervise or manage other registered representatives or securities business within the membersfirm. This would entitle the holder to supervise trades involving corporate securities, direct participation programs (DPP’s) and investment company/variable contracts.


Series 63 License

The Series 63 License entitles the holder to solicit orders for any type of security in a particular state. This license is required in addition to the Series 7 or Series 6.


Series 65 License

The Series 65 License entitles the holder to dispense investment advice.


Series 66 License

The Series 66 License is a combination of the Series 63 and Series 65 licenses.


Simplified Employee Pension Plan (SEP)

A type of plan under which the employer contributes to an employee's IRA. Contributions may be made up to a certain limit and are immediately vested.


Single-Life Annuity

An insurance-based contract that provides future payments at regular intervals in exchange for current premiums. Generally used as a supplement to retirement income and pays over the life of one individual, usually the retiree, with no rights of payment to any survivor.


Split-Dollar Plan

An arrangement under which two parties (usually a corporation and employee) share the cost of a life insurance policy and split the proceeds.


Spousal IRA

An IRA designed for a spouse with no earned income. Between a spousal IRA and a regular IRA, the maximum combined contribution that a couple can make is $11,000 in 2014 ($12,000 if one spouse is age 50 or older or $13,000 if both are age 50 or older) or 100 percent of earned income, whichever is less. This total may be split between the two IRAs as the couple wishes, provided the contribution to either IRA does not exceed $5,500 ($6,500 for those aged 50 or older).

 

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Tax Bracket

The range of taxable income that is taxed at a certain rate. Brackets are expressed by their marginal rate.


Tax Credit

Tax credits, the most appealing type of tax deductions, are subtracted directly, dollar for dollar, from your income tax bill.


Tax Deferred

Interest, dividends, or capital gains that grow untaxed in certain accounts or plans until they are withdrawn.


Tax-Exempt Bonds

Under certain conditions, the interest from bonds issued by states, cities, and certain other government agencies is exempt from federal income taxes. In many states, the interest from tax-exempt bonds will also be exempt from state and local income taxes.


Taxable Income

The amount of income used to compute tax liability. It is determined by subtracting adjustments, itemized deductions or the standard deduction, and personal exemptions from gross income.


Technical Analysis

An approach to investing in stocks in which a stock's past performance is mapped onto charts. These charts are examined to find familiar patterns to use as an indicator of the stock's future performance.


Tenant in Common

A form of co-ownership. Upon the death of a co-owner, his or her interest passes to his or her chosen beneficiaries and not to the surviving owner or owners.


Term Insurance

Term life insurance provides a death benefit if the insured dies. Term insurance does not accumulate cash value and ends after a certain number of years or at a certain age.


Testamentary Trust

A trust established by a will that takes effect upon death.


Testator

One who has made a will or who dies having left a will.


Total Return

The total of all earnings from a given investment, including dividends, interest, and any capital gain.


Trust

A legal entity created by an individual in which one person or institution holds the right to manage property or assets for the benefit of someone else. Types of trusts include: Testamentary Trust – A trust established by a will that takes effect upon death; Living Trust – A trust created by a person during his or her lifetime; Revocable Trust – A trust in which the creator reserves the right to modify or terminate the trust; Irrevocable Trust – A trust that may not be modified or terminated by the trustor after its creation


Trustee

An individual or institution appointed to administer a trust for its beneficiaries.


Trustee-to-Trustee Transfer

A method of transferring retirement plan assets from one employer's plan to another employer plan or to an IRA. One benefit of this method is that no federal income tax will be withheld by the trustee of the first plan.

 

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Universal Life Insurance

A type of life insurance that combines a death benefit with a savings element which accumulates tax deferred at current interest rates. Under a universal life insurance policy, the policyholder can increase or decrease his or her coverage, with limitations, without purchasing a new policy.

 

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Variable Universal Life Insurance

A type of life insurance that combines a death benefit with a savings element that accumulates tax deferred. Under a variable universal life insurance policy, the cash value in the policy can be placed in a variety of sub accounts with different investment objectives. The policyholder can transfer funds among the sub accounts as he or she wishes. Fees are charged after a certain number of transfers.


Volatility

The range of price swings of a security or market over time.

 

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Welfare Benefit Plan

An employee benefit plan that provides such benefits as medical, sickness, accident, disability, death, or unemployment benefits.

 

Whole Life Insurance

"ordinary" or "straight" life insurance.

 

Will

A legal document that declares a person's wishes concerning the disposition of property, the guardianship of his or her children, and the administration of the estate after his or her death.

 

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Yield

In general, the yield is the amount of current income provided by an investment. For stocks, the yield is calculated by dividing the total of the annual dividends by the current price. For bonds, the yield is calculated by dividing the annual interest by the current price. The yield is distinguished from the return, which includes price appreciation or depreciation.

 

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Zero-Coupon Bond

This type of bond makes no periodic interest payments but instead is sold at a steep discount from its face value. Bondholders receive the face value of their bonds when they mature.

 

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