Investor Education

An individual or firm in the securities business acting as a principal rather than as an agent. Dealers earn their profits from mark-ups and mark-downs, never commissions.

See "Settlement (Delivery) Date."

The percentage or dollar amount below net asset value at which shares of a closed-end company may sell (opposite of Premium).

Any bond that sells in the marketplace at a price below its face amount, usually because interest rates have risen since its issuance. Of course, a decline in the credit standing of the issuer will frequently cause the bond's price to drop as well. Some bonds (zero-coupon for example) are originally offered at a discount. (See "Premium Bond.")

An account in which the customer authorizes in writing a registered representative to use his judgment (completely, or within certain limits) in buying and selling securities including selection, timing, amount, and price. However, judgment as to time and/or price only is not considered discretion.

An order that empowers a registered representative with a discretionary account to use his own judgment on the customer's behalf with respect to choice of the security, quantity of the security and whether any such transaction should be a purchase or sale. (See "Discretionary Account.")

Investment in a number of different security issues for the purpose of spreading and reducing the risks inherent in investing.

A mutual fund that invests its assets in a wide range of common stocks. The fund's objectives may be growth, income, or a combination of both.

A management company that has at least 75 percent of its assets arranged so as not to own securities of one issuer having a value greater than 5 percent of the management company's total assets and do not own more than 10 percent of the voting securities of any corporation. There are no restrictions placed upon the other 25 percent of the company's assets. Therefore, as much as 30 percent of assets could be in one stock. (See "Management Company.")

The annual rate of return on a common or preferred stock investment. The yield is calculated by dividing the annual dividend by the purchase price of the stock.

Investing equal amounts of money at regular intervals regardless of whether the stock market is moving upward or downward. This reduces average share costs by automatically acquiring more shares in periods of lower securities prices and fewer shares in periods of higher prices. This does not assure a profit or protect against depreciation in declining markets. An investor should consider his or her financial ability to continue making additional investments through periods of low share price levels.

A time measure of a bond's interest rate sensitivity based on the weighted average of the time periods over which the bond's cash flows accrue to the bondholder. Time periods are weighted by multiplying the present value of its cash flow divided by the bond's price (a bond's cash flows consist of coupon payments and repayment of principal). A bond's duration will almost always be shorter than its maturity, with the exception of zero coupon bonds, for which the maturity and duration are equal.