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Glossary

Acceptance Company Paper

Short-term negotiable debt securities issued by finance companies to fund loans to consumers for items such as cars and appliances.

Accounts Payable

Debts of a company for goods or services purchased that must be paid within one year. These debts are listed as a current liability on the company's balance sheet.

Accounts Receivable

Money owed to a company for goods and services it has sold. Payment is expected within one year. This money is listed as a current asset on the company's balance sheet.

Accredited investor

An individual with at least $1 million in financial assets (cash and securities only, not real estate) before taxes, net of any debts. Individuals also qualify as accredited investors if their net income before taxes is more than $200,000, or $300,000 when combined with the income of a spouse, in each of the two most recent years, and who expects to have the same net income in the current year. Accredited investors can also be an individual, either alone, or with a spouse, who has net assets of at least $5 million.

Accrued Interest

The interest accumulated on a bond or debenture since the last interest payment date.

Accumulated Earned Income (AEI)

AEI includes investment income, dividends, interest and capital gains, earned on the RESP subscriber’s contributions and monies deposited to the RESP by government agencies.

Accumulated Income Payment (AIP)

Payments to the subscriber out of the plan’s investment earnings, including earnings on Canada Education Savings Grants (CESGs). Usually paid at the RESP plan’s maturity or when there is no student beneficiary. AIP payments are taxable to the subscriber.

Accumulation Plan

An arrangement where an investor purchases mutual fund units regularly, in small or large amounts.

Actuary

In the pension area, a professional who is responsible for calculating the liabilities of pension plans and the costs of providing pension plan benefits. 

Advisors/Advisers

Advisors specialize in giving advice to clients about investing in securities, but they do not buy or sell securities for their clients. Advisors are registered with the securities regulators to give investment advice. 

Affiliated Company

A company with less than 50% of its stock owned by another corporation, or one whose stock, with that of another corporation, is owned by the same controlling interests.

Affinity fraud

A type of scam that usually occurs in a group setting (ethnic groups, clubs, associations, religious groups, etc.). Scammers will gain trust by joining groups that they can share common interests; it is often easier to trust someone who is like you or has similar interests to you. Once trust is gained, it is easier to execute a scam.

Agent

An investment dealer operates as an agent when it acts on behalf of a buyer or a seller, and does not itself own title to the securities at any time during the transactions.

All or none

A market order to buy or sell in its entirety. In other words, no partial order is to be executed by a broker.

Alpha

Alpha measures the difference between a fund's actual returns and its expected performance, given its level of risk (as measured by beta). A positive alpha figure indicates the fund has performed better than its beta would predict. In contrast, a negative alpha indicates a fund has underperformed, given the expectations established by the fund's beta. Some investors see alpha as a measurement of the value added or subtracted by a fund's manager.

There are limitations to alpha's ability to accurately depict a manager's added or subtracted value. In some cases, a negative alpha can result from the expenses that are present in the fund figures but are not present in the figures of the comparison index. Alpha is completely dependent on the accuracy of beta as measured by R-squared: If the investor accepts beta as a conclusive definition of risk, a positive alpha would be a conclusive indicator of good fund performance.

Alpha

Alpha is a theoretical statistic that attempts to measure and quantify the portion of an investment's rate of return that can be attributed to the investment managers skill and prowess. It is said to measure the value an investment manager brings/or takes away to/from a mutual fund's performance.

Alpha is typically calculated for mutual funds and is calculated using a some sort of benchmark index for comparison.

A mutual fund with an Alpha of +1.0 is said to indicate that the fund has outperformed its benchmark index by 1% and this outperformance is then attributed to the fund managers' skill. Correspondingly, a similar negative alpha would indicate an underperformance of 1%.

Alpha is one of five technical risk ratios; the others are beta, standard deviation, R-squared, and the Sharpe ratio. These are all statistical measurements used in modern portfolio theory (MPT). All of these indicators are intended to help investors determine the risk-reward profile of a mutual fund. Simply stated, alpha is often considered to represent the value that a portfolio manager adds to or subtracts from a fund's return.

Alternative Transferee

A person other than the principal party in whose name securities are to be registered.

American Stock Exchange

The second largest stock exchange in the United States, located in New York City. The primary marketplace in the U.S. for equities, bonds, options and derivatives securities.

Amortization

Gradually writing-off the value of an intangible asset over a period of time. Commonly applied to items such as goodwill, improvements to leased premises, or expenses of a new stock or bond issue.

Annual average growth rate

A percentage rate of change calculated by comparing the average or total for a year with the corresponding figure from the previous year.

Annual information form (AIF)

An AIF is a legally required disclosure document to provide material information about a company and its business at a particular point in time based on its historical and possible future development.

Annual Report

The formal financial statements and report on operations issued by a company to its shareholders after its fiscal year-end.

Annualized return

The annualized rate of return looks at returns for a period of time longer than one year. Calculations are performed to determine what the annual rate of return would be if the returns maintained the same level of performance over a one-year period.

Annuitant

An individual who purchases an annuity and receives benefits from that annuity. The annuity owner can choose to annuitize the policy, meaning that he or she will receive regular payments from that annuity.

Annuity

An individual who purchases an annuity and receives benefits from that annuity. The annuity owner can choose to annuitize the policy, meaning that he or she will receive regular payments from that annuity.

Annuity

A contract purchased from an insurance company to provide periodic (usually monthly) payments to a person for his or her lifetime. 

Arbitrage

The simultaneous purchase of a security on one stock exchange and sale of the same security or an equivalent of that security on the same or another exchange which can result in a profit. The profit is the difference between the buy and sell prices and is usually a very small amount per unit. Arbitrage is a sophisticated manoeuvre executed by professional traders.

Arrears

Interest or dividends which were not paid when due and are still owed.

Ask

The lowest price at which someone is willing to sell a security.

Ask Price

The price at which a security is offered for sale on a market exchange. Also called the asked price or offering price.

Asset Allocation

The process of dividing investments among different kinds of asset categories, such as stocks, bonds, real estate and cash, to optimize the risk/reward trade-off based on an individual's or institution's specific situation and goals. A key concept in financial planning and money management.

Assets

Everything a company or person owns or is owed, such as money, securities, equipment and buildings. Assets are listed on a company's balance sheet.

Assisted Contributions

Contributions made to an RESP account that resulted in a Canada Education Savings Grant (CESG) payment deposited to the RES

Associated Company

A company owned jointly by two or more other companies.

At-The-Money Option

An option with an exercise or strike price that is equal, or almost equal, to the current market price of the underlying security.

Audit

Verifying the accuracy of accounting and financial records by a member of the Institute of Chartered Accountants. In some provinces Certified General Accountants and Certified Management Accountants may also act as company auditors.

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