GREAT BASIN RESEARCH

Business and Economic Research Group

Dictionary of
Financial Words
A Compilation of Accounting, Banking,
Business, Economic, Financial,
and Real Estate Terminology
January 2002
Researched, Written, Compiled, and Edited by
Gary A. Horton, Financial Economist
©2001-2002 Great Basin Research

[Note on word presentation and cross references: Defined words are initially presented in Capitalized Bold; cross-referenced words
within definitions are presented the first time in Capitalized Italics. Words are generally presented according to their common
pronunciation, i.e., “Secondary Market” versus “Market, Secondary”. Acronyms, where presented, will either present the full word
term or refer back to the full word, unless it was felt that the acronym is more commonly used. In addition, words are presented
according to the whole root word’s most accepted spelling, therefore “Pro Forma” will appear before “Problem Bank”.]

A
A — The fifth letter of a NASDAQ stock symbol specifying Class A shares.
AA — See Against Actuals.
AAA — The highest rating given to corporate or municipal bonds indicating the expected full payment of both principal and interest
at maturity. Standard & Poor’s and Moody’s Investor Service rates investment grade bonds as BBB or Baa, respectivelly or
higher. Bonds or securities below these investment grade ratings are considered as Junk Bonds. See Bond Rating for a more
complete presentation of the security rating system.
AAA Tenant — A tenant with a top credit rating. To a real estate developer, attracting such a tenant is important since the ability
to arrange both construction and permanent financing for a major commercial project, such as a shopping center or office
building, is often dependent upon pre-leasing a certain amount of the space to an AAA tenant(s).
AAII — See American Association of Individual Investors.
Abandon — (1) To give up or leave employment; to relinquish possession of personal property with the intent to disclaim title. (2)
Refers to the decision not to exercise an Option or, sometimes, a clause. It may also refer to the intentional or unintentional lack
of use, maintenance, or affirmation process about assets. These assets may include securities, bank accounts, refunds, trademarks,
and so on. In such cases the property can go to a jurisdiction such as a state or federal government.
Abandonment — The voluntary release of a claim or right one has in a piece of property with the clear intention of terminating
possession or interest and without giving this interest to anyone else. Abandonment includes both the intention to release any
claim one has against the property as well as the actual act of “abandoning” the property.
Abatement — (1) A complete or partial cancellation of a levy imposed by a governmental unit. (2) A decrease or reduction in the
amount of a charge such as rent. For example, a tenant receives an abatement of rent during the time the leased space cannot
be inhabited due to fire or flood damage. Abatements usually apply to tax levies, special assessments, and service charges.
Ability to Pay — (1) Refers to a borrower’s ability to make interest and principal payments on debts. Also see Fixed Charge

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Dictionary of Financial Words GREAT BASIN RESEARCH

Coverage Ratio. (2) In context of municipal bonds, refers to the issuer’s present and future ability to create sufficient tax revenue
to fulfill its contractual obligations, accounting for municipal income and property values. (3) In context of taxation, notion that
tax rates should be determined according to income or wealth.
Ability-to-Pay Principle — (Taxation) The idea that people or entities (i.e., corporations) who earn more (or own more) should pay
more in terms of taxes.
Able — A term referring to the financial capability of a purchaser. The word is often used in a phrase appearing in real estate listing
agreements and sales contracts as “ready, willing and able.”
Abnormal Sale — A sale that is not typical within the context of what is happening in the marketplace.
ABO — See Accumulated Benefit Obligation.
Abode — A home or place of residence.
Above Par (Value) — The price of a stock or bond when it is higher than its face (redemption) value.
Abrogate — To repeal or cancel. For example, a law could be repealed (abrogated) by legislative action.
ABS — See Asset Backed Securities.
ABS — See Automated Bond System.
Absentee Owner — The owner(s) of property who does not physically reside on the property. When this occurs both the rental as
well as the upkeep of the property are normally done by someone other than the actual owner, such as a property manager.
Absorbed — Used in the context of general equities. Securities are “absorbed” as long as there are corresponding orders to buy and
sell. The market has reached the absorption point when further assimilation is impossible without an adjustment in price.
Absorption Costing — A cost allocation system in which all manufacturing costs, both fixed and variable, are treated as Product
Costs, while non-manufacturing costs (e.g., interest expense, selling and general and administrative expenses, etc.) are treated
as Period Costs. Absorption costing for inventory valuation is required for external reporting. Compare to Direct Costing.
Absorption Rate — The percentage of a particular type of real estate that can be sold or leased in a particular location during a
certain period of time.
Absolute Advantage — The ability to produce a good for less cost (less factory inputs) than anyone else. Also see Comparative
Advantage.
Abstract — The notes made by a title examiner based on his examination of the land records. These notes are a concise summary
of the transactions affecting the property. The title agency produces a binder from the information in the abstract. Also referred
to as Abstract of Title.
Abstract of Title — (1) The history of the transfers of title to a given piece of land, briefly stating the parties to and the effect of
all deeds, wills, and judicial proceedings relating to the land. A condensed chronological history of all recorded instruments in
the chain of title which affect the title. (2) A summary of the public records relating to the title to a particular piece of land. An
attorney or title insurance company reviews an abstract of title to determine whether there are any title defects which must be
cleared before a buyer can purchase clear, marketable, and insurance title.
Abstraction (Extraction) Method — A method of estimating the value of land by establishing a ratio of site value to total property
value based on data from comparable improved properties. The ratio derived from comparable properties is then applied to the
total value of the property being appraised to estimate the value of the land.
Abut — To border on or to share a common boundary. For example, a property owner could have land that “abuts” a highway,
which means the two properties border each other.
ACAT — See Automated Customer Account Transfer.
ACATS — See Automated Customer Account Transfer Service.
Accelerated Cost Recovery System (ACRS) — A system of Depreciation for tax purposes mandated by the Economic Recovery
Act (ERA) of 1981 and modified by the Tax Reform Act of 1986. Under this concept the type of property determines its class.
Instead of providing statutory tables of depreciation schedules, prescribed methods of depreciation are assigned to each class of
property. For 3, 5, 7, and 10-year classes, the relevant depreciation method is the 200 percent declining balance method. For
15 and 20-year property, the appropriate method is the 150 percent declining balance method, switching to the straight-line
method when it will yield a larger allowance. For residential rental property (27.5 years) and nonresidential property (31.5 years),
the applicable method is the straight-line method. A taxpayer may make an irrevocable election to treat all property in one of
the classes under the straight-line method. Property is statutorily placed in one of the classes. The intent of the ACRS is to
encourage more capital investment by businesses. To this end, it permits a faster recovery of the asset’s cost and thus provides
larger tax benefits in the earlier years of an asset’s life. Also see Modified Accelerated Cost Recovery System (MACRS).
Accelerated Depreciation — Depreciation methods that write off the cost of an asset at a faster rate than the write-off under the
straight line method. A form of depreciation in which expenses are accelerated in the early years creating greater charges against
income for tax reduction purposes. The three principal methods of accelerated depreciation are: (1) sum of years’ digits, (2)
double declining balance, and (3) units of production. As a non-cash charge to earnings, cash flows are increased due to reduced
income taxes in the earlier years of an asset’s life. Accelerated depreciation techniques create only “timing differences” in
depreciation; the total depreciated value remains the same regardless of the depreciation method used.
Acceleration Clause — (1) A provision in a contract, loan document, or any legal instrument that upon a certain event the time for
the performance of specified obligations shall be advance, for example, a provision making the balance due in full upon the
debtor’s default. (2) A condition in a real estate financing instrument giving the lender the power to declare all sums owing
lender immediately due and payable upon the happening of an event, such as the sale of the property, or a delinquency in the
repayment of the note. (3) A clause in a promissory note, mortgage or deed of trust giving the creditor (mortgagee) the legal right
to demand immediate payment of all future payments due to the occurrence of some event such as the default on an installment
payment or the failure to keep the property adequately insured.

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Business and Economic Research Group Dictionary of Financial Words
Acceleration Principle — Changes in consumer demand (spending) cause even greater changes in derived demand and therefore
in investment spending.
Accelerationist Hypothesis — The idea that Monetary Policy and Fiscal Policy can be used to permanently reduce the rate of
unemployment only at the cost of accepting an accelerating rate of Inflation.
Acceptance — (1) A voluntary expression by the person receiving the offer (the Offeree, and quite often the seller of the property)
to be bound by the exact terms of the offer in the manner requested or authorized by the person making the offer (the Offeror,
and quite often the potential buyer of the property). An acceptance must be unequivocal and unconditional. (2) The unqualified
assent to the act or proposal of another, as the acceptance of a draft or bill of exchange, of acceptance of money through a loan
contract, of an offer to make a contract, or of a gift or a deed. Also see Banker’s Acceptance.
Access — The right to enter upon and leave property. The owner of land which abuts or adjoins a road or highway normally has
a vested right to come and go from his or her land to the highway without obstruction, subject to limitations imposed by the
governing body.
Accessibility — (1) Markets are said to be accessible when there is ease of entry and exit to producers, buyers, and sellers. (2) The
ease with which a person can either enter or exit a particular parcel of land. The accessibility of a particular parcel is a function
of many things such as frontage to a road, traffic flow, and topography. Good accessibility will usually result in higher value;
likewise, a parcel of land with poor accessibility will normally sell for less in the marketplace.
Accession — (1) The legal right that entitles the owner of land to all that the soil produces or all that is added to the land either
intentionally or by mistake. (2) The acquisition of title to property by a person by virtue of the fact that it has been attached to
property that is already owned.
Accessory Building — A second building on a lot and one that is not considered to be the primary building. A storage shed or a
detached garage would be an accessory building.
Accommodating Accounts — In the Balance of Payments, those accounts that for analytical purposes can be considered triggered
by the need to finance other transactions included in the balance of payments. Also referred to as Compensating or Financing
Accounts.
Accommodation Party — A person who signs a Commercial Paper or contract to lend credit to another.
Accommodative Monetary Policy — Federal Reserve System policy to increase the amount of money available to banks for
lending. Also referred to as Easy Monetary Policy. See Monetary Policy.
Accord — An agreement between the Federal Reserve System (Fed) and the U. S. Treasury Department concluded in March 1951.
It freed the Federal Reserve from the obligation of “pegging” or fixing interest rates and allowed it to pursue a discretionary and
independent Monetary Policy.
Accord and Satisfaction — An agreed-to substitution of a different performance for the original obligation, the accord being the
agreement and the satisfaction the execution or performance.
Account — (1) (Accounting) Refers to the ledger pages upon which various assets, liabilities, income, and expenses are represented.
A record of the additions, deductions, and balances of individual assets, liabilities, owners’ equity, revenues, and expenses. The
basic component of a formal Accounting System. (2) (Investment Banking) Refers to the status of securities sold and owned or
the relationship between parties to an Underwriting Syndicate. (3) (Securities) The relationship between a client and a
broker/dealer firm allowing the firm’s employee to be the client’s buying and selling agent. Also see Account Executive and
Account Statement.
Account Activity — The transactions associated with an account, whether it be a deposit account showing deposits, withdrawals,
and automatic transfers, or a loan account which shows payments made, interest credited, loan additions, or payoff. A complete
record of such transactions comprises part of a financial institution’s Account Analysis.
Account Analysis — A record of the transactions, typically provided on a monthly basis, associated with a customer’s account,
particularly that provided to corporate customers as part of a financial institution’s overall Cash Management services. Account
analysis is typically done to assess the adequacy of a customer’s compensating balances or the fees paid for banking services
received. The analysis takes into account such activity as the average daily balance, float activity, earnings credit, and related
factors.
Account Executive — (1) The title given by some brokerage firms to their stockbrokers. Other variations on the title include
registered representative, financial counselor, and financial consultant. (2) The party who acts as an agent for his customer. The
agent or broker receives a commission as compensation. This person may also participate in spreads or other fees which generate
revenue for the firm. This person is also known as an Associated Person (AP), Investment Executive (IE), Registered
Representative (RR), Registered Customer Support Person, or Securities Salesman. Brokers are required to be licensed according
to product lines and states when required.
Account History — A summary statement of a deposit account’s activity, normally recorded over a monthly period. This form of
analysis is generally the one presented to bank depositors on their monthly statement of account activity.
Account Hold — Also referred to as Check Hold, the account hold is the number of days from date of deposit that a financial
institution can legally hold uncollected balances before providing customers the use of these funds. The holding period represents
the time required for the institution to collect the funds from the institution upon which the check or draft for payment was
written. Also see Check Kiting.
Account Inquiry — A request for the Account History of a customer’s account.
Account in Trust — An account managed by one party for the use or benefit of another who is named as the account beneficiary.
Normally such accounts are established for minor children as savings accounts for future use (e.g., in trust for) or checking
accounts for college students and the like.
Account Number — The numeric code identifying the owner of an account. For financial institutions, such account numbers may

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Dictionary of Financial Words GREAT BASIN RESEARCH

contain coded information for security purposes.

Account Party — The party whose bank issues a Letter of Credit, usually the buyer.
Account Reconcilement — A bookkeeping service offered by banks, frequently for a fee, which aides customers in balancing their
checking accounts.
Accountabilities — Assets and resources for which a person or organization (including a governmental unit) must render an
accounting, although he or it may not be personally liable for them. For example, a public official is responsible for the cash and
other assets under his control and must account for them. Moreover, even if a trustee has disbursed all funds confided to his care
and has relieved himself of liability, he is still obligated to account for them, and the items are, therefore, accountabilities.
Accountant’s Opinion (Letter) — A statement provided by an outside accounting firm attesting to their findings and examination
of the financial records of a company that the transactions recorded and presented in the financial statements follow Generally
Accepted Accounting Principles (GAAP). An opinion may be qualified or unqualified depending on the extensiveness of the
accountant’s examination. A qualified opinion indicates that the examination, typically due to limitations in scope, was not able
to directly confirm all information contained within the statements, and is therefore not necessarily negative. Also see Adverse
Opinion.
Accounting — (1) The process of recording, classifying, reporting, and interpreting the financial data of an organization. (2) A
system of record keeping that provides individuals and organizations the means to provide information on resources available
for the purpose of the organization, the means to finance these resources, and the results achieved through their use.
Accounting Concepts — A number of concepts or underpinnings are essential to accounting systems. Some of the most important
of these include:
[1] Money Measurement – Accounting records only those facts that can be put into monetary terms;
[2] Entity – Accounting records deal with entities and organizations rather than the persons associated with those
entities;
[3] Going Concern – Accounting concepts deal with assumption that entities will continue in business and are not about
to be liquidated, thereby using up long-lived assets and pay off long-term liabilities;
[4] Cost – Assets are entered and maintained in the accounting records based on the cost used to acquire them rather
than the current market value (see Historical Costs and Book Value);
[5] Dual Aspect – The total amount of assets of an entity equals the total amount of liabilities plus owners’ (or
shareholders’) equity;
[6] Accounting Period – Accounting measures financial activities for a specific period of time, usually one year;
[7] Conservation – Accounting tends to be conservative in as much as revenues are recognized only when they are
reasonably certain, whereas expenses are recognized as soon as they are reasonably possible; also speaks to use of
the typically more conservative book value for assets versus more current market value;
[8] Realization – The amount recognized as revenue is the amount that is reasonably certain to be received by the entity;
realization deals with the amount to be recorded whereas conservation deals with when that amount is to be
recorded;
[9] Matching – Activities affecting both revenues and expenses should be recognized in the same accounting period;
[10] Consistency – Once an entity has decided on a certain accounting treatment, it must continue (i.e., be consistent)
that treatment for all subsequent events of the same character unless there exists sound reason to change the
accounting treatment;
[11] Materiality – Relatively insignificant events may be disregarded, but important events must be fully disclosed.
Accounting Cycle — Steps taken in the processing of business transactions during the accounting year:
[1] Analyzing transactions;
[2] Recording in journals;
[3] Posting to the general ledger;
[4] Adjusting the accounts;
[5] Preparing financial statements; and
[6] Closing temporary accounts.
Accounting Entity — Those people, assets, and activities devoted to a specific economic purpose and for which a separate
accounting should be made.
Accounting Equation — An expression of the equivalency in dollar amounts of assets and equities in double entry bookkeeping;
often stated as:
Assets = Liabilities + Owners’ Equity
Accounting Exposure — See Balance Sheet Exposure, Transaction Exchange Gain or Loss, and Translation Exchange Gain or
Loss.
Accounting Period — (1) That time period, typically one year, to which accounting reports are related. (2) A period at the end of
which, and for which, financial statements are prepared.
Accounting Principles — See Generally Accepted Accounting Principles (GAAP).
Accounting Principles Board (APB) — A former authoritative body of the American Institute of Certified Public Accountants
(AICPA) which issued pronouncements on accounting principles until it was replaced by the Financial Accounting Standards
Board (FASB) in 1973. Of the 31 APB opinions, several were instrumental in improving the theory and practice of significant
areas of accounting in the United States.

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Business and Economic Research Group Dictionary of Financial Words
Accounting Procedures — The arrangement of all processes which discover, record, and summarize financial information to
produce financial statements and reports and to provide internal control. Also see Accounting System.
Accounting Research Bulletins (ARB) — Publications containing recommended accounting procedures. While the Bulletins have
not been binding on the American Institute of Certified Public Accountants (AICPA) members, the Securities and Exchange
Commission (SEC) typically has required their use by corporations under their jurisdiction. The Bulletins were issued by the
Committee on Accounting Procedure of the AICPA. The Committee was replaced by the Accounting Principles Board (APB)
in 1959, which was itself replaced by the Financial Accounting Standards Board (FASB) in 1973.
Accounting Risk — See Translation Risk.
Accounting Series Releases (ASRS) — Publications issued by the Securities and Exchange Commission (SEC) as official accounting
pronouncements. Releases include accounting requirements, disclosure mandates, auditing policies, and SEC activities regarding
Certified Public Accountant (CPA) firms filing financial statements with the SEC for publicly traded companies. The Accounting
Series Releases are now codified as Financial Reporting Releases (FRRs).
Accounting System — The total structure of records and procedures which discover, record, classify, and report information on the
financial position and operations of an organizational unit or any of its funds, balanced account groups, and organizational
components. Also see Accounting Procedures.
Accounts Receivable — (1) An amount of money due and payable by a customer or client. (2) Amounts owing on open account
from private persons, firms, or corporations for goods and services furnished by an entity.
Accrete (Accretion) — An increase in the value of an asset which from an accounting sense is accompanied by the generation of
non-cash income. The cash gain is realized upon eventual sale or disposition of the asset. For example, the Discount (i.e., the
difference between the lower sales price and the par or face value) on the purchase of a U.S. Treasury bill is accreted as income
over the live of the security based upon its redemption at its (higher) face value.
Accreted Value — A valuation basis for certain investments and debt instruments that reports on the balance sheet only that portion
of their face value that reflects principal and interest accrued to date.
Accretion — (1) The buildup of land from natural forces such as wind or water. (2) The accumulation of land (soil) as a result of
the gradual washing or motion of water (Alluvion).
Accretion of Discount — An accounting entry made to interest income in order to offset any Discount to be earned for bonds
purchased below their par value or call price.
Accrual Basis of Accounting — The accounting basis whereby revenues are recognized in the period earned whether actually
received or not and expenses are recognized and matched with the related revenues of the period whether actually paid or not.
Also referred to as the Accounting Method. Contrast with Cash Basis of Accounting.
Accrual Method — See Accrual Basis of Accounting.
Accrual System — Accounting system in which the returns and costs are reported when legally incurred rather than when the cash
flow associated with the receipt or the payment materializes.
Accruals — Continually recurring short-term liabilities. Examples are accrued wages, accrued taxes, and accrued interest.
Accrue (Accrual) — (1) A method of accounting for income or expenses based upon expected cash flows as opposed to actual cash
received or paid out. (2) To record revenues when earned and to record expenditures as soon as they result in liabilities for
benefits received, notwithstanding that the receipt of cash or payment of cash may take place, in whole or in part, in another
accounting period. Accrual accounting tends to smooth earnings by better matching a period’s anticipated revenues with
associated expenses.
Accrued — An accumulation over a certain period of time, such as Accrued Depreciation (an expernse) or Accrued Interest (a
revenue).
Accrued Benefits — The amount of a pension plan participant’s benefit (whether or not Vested) as of a specified date, determined
in accordance with the terms of the pension plan and based on the level of compensation (if applicable) and period of service to
that date.
Accrued Depreciation — Any diminishment or loss of utility or value of a building or other qualifying Capital Asset from the time
of initial construction or purchase to the present. The accrued depreciation on a building, for example, is calculated as the
difference between what it would cost to replace the building new and the current appraised value of the building.
Accrued Discount — (Savings Bonds) Interest that accumulates on United States savings bonds from the date of purchase until the
date of redemption or final maturity, whichever comes first. Savings bond series A, B, C, D, E, EE, F, I, and J are discount or
accrual bonds, meaning principal and interest are paid when the bonds are redeemed. Savings bonds series G, H, HH, and K are
current-income bonds, and the semiannual interest paid to their holders is not included in accrued discount.
Accrued Dividend — The regular dividend considered to have been earned by the stockholder but not declared or payable.
Accrued Expenses — Expenses incurred during the current accounting period but which are not payable until a subsequent
accounting period. Also see Accrual Basis of Accounting and Accrue.
Accrued Income — See Accrued Revenue.
Accrued Interest — (1) Interest that has been earned but has not yet been paid; unpaid interest that has already been earned. (2)
Interest accrued but not yet paid on a bond or security since the last interest payment was made. The buyer of the bond pays the
market price plus accrued interest. (3) Interest that is due but hasn’t yet been paid. It most often comes into play when you buy
bonds in the secondary market. Bonds usually pay interest every six months, but it is earned (accrued) by bondholders every
month. If you buy a bond halfway between interest payment dates, you must pay the seller for the three months’ interest accrued
but not yet received. The buyer gets the money back three months later when he receives the interest payment for the entire six-
month period. (4) (Convertible Securities) Interest that has accumulated between the most recent payment and the sale of a bond
or other fixed-income security. At the time of sale, the buyer pays the seller the bond’s price plus “accrued interest,” calculated

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Dictionary of Financial Words GREAT BASIN RESEARCH

by multiplying the coupon rate by the fraction of the coupon period that has elapsed since the last payment. (If a bondholder
receives $40 in coupon payments per bond semiannually and sells the bond one-quarter of the way into the coupon period, the
buyer pays the seller $10 as the latter’s proportion of interest earned.)
Accrued Interest Payable — A liability account reflecting certain interest costs that have been incurred but are not due until a later
date.
Accrued Interest on Investments Purchased — Interest accrued on investments between the last interest payment date and the date
of purchase.
Accrued Interest Payable — A liability account which represents the amount of interest expense accrued at the balance sheet date
but which is not due until a later date.
Accrued Revenue — Revenue earned during the current accounting period but which is not to be collected until a subsequent
accounting period. Also see Accrual Basis of Accounting and Accrue.
Accrued Taxes Payable — A liability for taxes which has accrued since the last payment date.
Accrued Wages Payable — A liability for wages earned by employees between the last payment date and the balance sheet date.
Accumulate — A broker’s or analyst’s recommendation that could mean slightly different things depending on the particular
broker/analyst. (1) In general, however, it means to increase the number of shares of a particular security over the near term, but
not to liquidate other parts of the portfolio to buy a security that might take off. (2) A buy recommendation, but not an urgent
buy.
Accumulated Benefit Obligation (ABO) — (1) An approximate measure of the liability of a Pension Plan in the event of a
termination at the date the calculation is performed. Also see Projected Benefit Obligation. (2) The actuarial present value of
benefits (whether vested or non-vested) attributed by the pension benefit formula to employee service rendered before a specified
date and based on employee service and compensation (if applicable) before that date. The accumulated benefit obligation differs
from the projected benefit obligation in that it includes no assumption about future-compensation levels.
Accumulated Depreciation — (1) The amount of depreciation already taken against an asset. Assume that a computer costs $6,000
and has an expected life of 5 years and no residual value (i.e., salvage value equals zero). After 3 years the accumulated
depreciation would be $3,600 (i.e., 3 years times $1,200 per year in annual depreciation). (2) A contra account to the related asset
account reflecting the cumulative amounts recorded as depreciation for a specific asset or group of assets.
Accumulated Dividend — A dividend not paid when due but expected to be paid at a later date; becomes a liability of the company
until payment.
Accumulated Plan Benefits — Benefits attributable under the provisions of a pension plan to employees for services rendered to
the benefit information date.
Accumulated Surplus — Also referred to as simply Surplus, the excess of a company’s profits, after the payment of taxes and
dividends, which are either held or reinvested.
Accumulation — (1) Refers to buying often coincident with market bottoms or consolidations. It also refers to purchases by insiders,
control people, or major investors. (2) (Corporate Finance) Refers to profits that are added to the capital base of the company
rather than paid out as dividends. Also see Accumulated Profits Tax. (3) (Investments) Refers to the purchase by an Institutional
Broker of a large number of shares over a period of time in order to avoid pushing the price of that share up. (4) (Mutual Funds)
Refers to the regular investing of a fixed amount while reinvesting dividends and Capital Gains.
Accumulation Plan — A plan for the systematic accumulation of Mutual Fund shares through periodic investments and re-
investments of dividend income and capital gains distributions.
Accuracy — (Data Analysis and Forecasting) The most commonly used and accepted criterion for evaluating the performance of
alternative forecast Models. A model’s accuracy of its predicted values to actual values, typically a Hold-Out Sample, which
thereby provides a measure of the correctness of one forecasting methodology to another.
ACES — See Advance Computerized Execution System.
ACH — See Automated Clearing House.
Acid Test Ratio — Another term used to describe the Quick Ratio or Quick Asset Ratio. It measures an organization’s liquidity by
adjusting current assets by subtracting inventories and then dividing by the Current Liabilities. See Financial Ratios.
Acknowledgment — (1) A formal declaration to a public official by a person who has signed (executed) an instrument which states
that the signing was voluntary. (2) As a verb, the confirmation by a party executing a legal document that this is his signature
and voluntary act. This confirmation is made to an authorized officer of the court or notary public who signs a statement also
called an Acknowledgment.
Acquisition — (1) The act or process by which property ownership is achieved. The ways in which title to real property is
transferred may be classified as (a) voluntary conveyance (deed); (b) transfer by devise (dying with a will) or descent (dying
without a will); (c) transfer by adverse possession; (d) transfer by accession; and (e) transfer by public action or by operation of
law. (2) The purchase of an asset with rights and title passing to the new owner. (3) A general term referring to the taking over
of one company by another as in Merger and Acquisition. In this regard, also see Leveraged Buyout.
Acquisition Adjustment — Premium paid for an Acquisition of a company or asset, over and above original cost less depreciation.
Similar to Goodwill.
Acquisition Cost — The total cost of purchasing or acquiring title to real property. In addition to the sales price, additional costs
could also include loan origination fees, appraisal fee, credit report fee, title charges, attorney fees, and other normal closing
costs.
Acre — A measure of land in whatever shape equal to 43,560 square feet, 4,840 square yards, or 160 square rods. A square parcel
of land measuring 208.71 feet on each side contains one acre. There are 640 acres in a Section of land.
Acreage Allotments — Government restrictions of the acreage that farmers may plant with a particular crop.

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Business and Economic Research Group Dictionary of Financial Words
Acreage Property — A large tract of land that has had few, if any, improvements made either “to” the land, such as roads or the
platting of individual lots, or “on” the land, such as buildings.
ACRS — See Accelerated Cost Recovery System.
Act of Bankruptcy — Any of the acts specified by the national bankruptcy law which, when committed by the debtor within the
specified time preceding the filing of the petition in bankruptcy, is proper grounds for declaring the debtor a bankrupt if the other
requirements are met.
Act of God — Any act of nature such as rain, lightning, floods, tornados, hurricanes, or earthquakes. Many casualty insurance
policies do not cover losses resulting from an “Act of God.”
Action Branches — (Decision Theory) Branches or paths (lines) of choice emanating from an Action Point in a decision-tree
diagram and representing the possible actions of the decision maker.
Action Point — (Decision Theory) In a decision-tree diagram, a point of choice (at which the decision maker is in control),
symbolized by a square.
Action to Quiet Title — (1) A court action to establish ownership of real property. (2) A lawsuit filed by a person to remove a cloud
on title or clear the claims of others filed against a parcel of property. The objective of such action is to have a court rule that
the claims filed against the property are invalid. Although technically not an action to remove a cloud on title, the two actions
are usually referred to as quiet title actions.
Actions — In Decision Theory, the mutually exclusive decision alternatives open to a decision maker.
Active Account — An account showing deposits or withdrawals during the specified accounting period. Contrast with Inactive
Account.
Active Fund Management — An investment approach that purposely shifts funds either between asset classes (Asset Allocation)
or between individual securities (Security Selection).
Activity Charge — A charge made by financial institutions to cover the costs of servicing an account. Such service charges are most
typically triggered when the account balance falls below some specified level, referred to as the minimum balance.
Actual Age — The historical (chronological) age of a building, as for example a building constructed ten years ago is ten years old
in actual age. Actual age should not be confused with effective age which is the age of a building that is indicated by the
condition and utility of the improvements. It should be clear that the amount of maintenance and care given to a building helps
determine its effective age. For example, a ten-year-old building might have an effective age of twenty-five years because of
poor or deferred maintenance.
Actual Authority — The power that a principal has expressly conferred upon an agent or any power that is incidental or necessary
to carry out the express power of the agency. This power may be broad, general power, or it may be limited, special power.
Actual Cash Value — The monetary worth of a structure for insurance purposes. Actual cash value is calculated by taking the
Replacement Cost of the property and then subtracting the value of the physical wear and tear of the property.
Actual Damages — The compensation received by an injured party for the actual injuries or loss suffered by the party.
Actual Eviction — The violation of any material breach of covenants by the landlord or any other act which wrongfully deprives
the tenant of the possession of the premises.
Actual Possession — The physical occupancy and control by someone of a parcel of real estate. For example, if John has clear title
to his house and is living in the house then he is in actual possession of the house. A distinction should be made between actual
possession and Constructive Possession, which occurs when a person has the legal right to assume occupancy but does not
actually occupy the space.
Actuals — The real or underlying asset for a Derivative product or Commodity Market. See Cash Commodity.
Actuarial — Relating to analysis involving compound interest and/or statistics. It is usually associated with computations involved
in insurance probability estimates. Also see Actuary (Actuaries).
Actuarial Assumptions — Assumptions used in the actuarial valuation process as to the occurrence of future events affecting
pension costs, such as mortality, withdrawal, disablement and retirement; changes in compensation and national pension benefits;
rates of investment earnings and asset appreciation or depreciation; procedures used to determine the actuarial value of assets;
characteristics of future entrants for open group actuarial cost methods and other relevant items.
Actuarial Basis of Accounting — An accounting method used in computing the amount of contributions to be made periodically
to a pension fund. Total contributions plus the accumulated earnings on it must equal the required payments to be made out of
the fund. Factors that must be considered are the length of time over which each contribution is to be held and the return on
investment of the funds held in the fund. A “trust fund” for a Public Employee Retirement System (PERS) is an example of a
fund set up on an actuarial basis of accounting.
Actuarial Cost Method — (1) A procedure for determining the Actuarial Present Value (APV) of pension plan benefits and expenses
and for developing an actuarially equivalent allocation of such value to individual periods, usually in the form of a normal cost
and an actuarial accrued liability. (2) A technique used by Actuaries to determine the periodic employer contribution to the
pension plan. It is used to measure pension expense and related funding. Two general approaches are usually considered when
selecting an actuarial funding method: (1) the cost approach and (2) the benefit approach. The cost approach projects an
estimated total retirement benefit and then determines the level cost that will be adequate (including expected interest returns)
to furnish total benefits at retirement. The benefit approach determines the amount of pension benefits attributable to service
to date and then determines the present value of these benefits. Also referred to as the Actuarial Funding Method. Also see
Actuarial Gains, Losses.
Actuarial Funding Method — See Actuarial Cost Method.
Actuarial Gains, Losses — The difference between estimates and actual experience in a pension plan. For example, if the actual
interest rate earned on pension assets exceeds the estimated rate, an actuarial gain results. Actuarial gains and losses are deferred

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Dictionary of Financial Words GREAT BASIN RESEARCH

and amortized to pension expense of future periods. The amortization of the actuarial gain will reduce pension expense.
Actuarial gains and losses applicable to a single event not related to the pension plan and not in the ordinary course of business
are recognized immediately in earnings. Examples are plan closing and segment disposal. Also see Actuarial Cost Method.
Actuarial Present Value (APV) — The discounted value of an amount or series of amounts payable or receivable at various times,
determined as of a given date by the application of a particular set of actuarial assumptions.
Actuarial Update — An estimate or projection of the pension benefit obligation developed by using techniques and procedures
considered necessary by the Actuary. If conditions are relatively stable, only a few minor adjustments (such a an accrual of
additional interest on the pension benefit obligation since the valuation date, and addition of benefits earned during the year less
benefits paid) may be sufficient. If there have been significant changes in one or more relevant factors (e.g., in the size or
composition of the population covered by the employees’ retirement system), the procedures may be more extensive.
Actuarially Determined Contribution Requirements — Amounts required to be paid annually to a pension plan, based on an
actuarial cost method or funding method.
Actuary (Actuaries) — A practitioner involved in mathematical computations and analysis of insurance probability estimates.
Ad Valorem — (1) A valuation based on the monetary worth of an asset. (2) In proportion to value, as in a fixed percentage of the
value of property or an asset. A basis for the levy of taxes upon property. For example, an ad valorem tax is a tax assessed on
the value of the underlying good or piece of real property. (3) A Latin prefix meaning “according to value”. Local and state
governments levy ad valorem taxes on real property based on the assessed value of the property. Two different pieces of property
with the same assessed value have the same Ad Valorem Tax. (4) Designates an assessment of taxes against property. Literally,
according to value; based on the “ability to pay” theory. Contrast with Specific Tax (or Specific Duty) which is a fixed amount,
irrespective of the asset’s worth or value.
Ad Valorem Tax — (1) A tax levied on the value of a good based on a percentage of value. (2) A tax placed on real property.
Typically, property taxes are based a market or Appraised Value, an Assessed Value, which is a fixed percentage of the market
value, an then an ad valorem tax rate normally expressed as a fixed dollar amount per $100 of assessed valuation. This is a
primary revenue source for many municipalities. Compare to Specific Tax or Specific Duty.
A-D — See Advance-Decline.
Adaptive Expectations — The idea that people form their expectations of economic variables solely on the basis of previous values
of those variables. See Deterministic Process.
ADC Loan — A type of loan intended to cover the three phases of a project: (1) acquisition, (2) development, and (3) construction.
Such loans, while considered more risky than some other types of real estate loans, are normally made with a variable interest
rate and are expected to be repaid over a reasonably short period of time.
Add-on Interest — (1) A method of interest payment calculation in which a percentage of the principal is used to calculate the
interest cost. The interest cost is then added to the principal to determine the total amount of payment. (2) A method of
calculating the amount of interest due by taking the simple interest that would be charged if the loan principal amount was not
amortized over the term of the loan. Periodic installments are thus calculated by dividing the sum of the add-on interest and
original principal by the number of periods in the term.
Add-on Method — A method of paying interest where the interest is added onto the principal at maturity or interest payment dates.
Also see Add-On Interest.
Addendum — Something that is added and thus made part of a document. Quite often a real estate listing agreement or sales
contract is a pre-printed form and thus may not have the space within the document to include specific and detailed information
that the parties to the contract wish to include.
Adequate Public Facilities Ordinance — A local government ordinance that requires that certain public facilities such as road and
utilities be completed or soon to be completed before any new real estate development can be permitted. This technique is used
by municipalities to control growth and direct new development toward areas where adequate public facilities already exist.
Adjacent Land — Land lying close to or near another parcel, though the two parcels may not actually touch. The term should not
be confused with adjoining land which exists when two parcels are actually jointed to each other.
Adjunction — The process of adding or annexing a parcel of land to a larger parcel.
Adjustable Peg — The exchange rate system under the 1944 Bretton Woods agreement. By this historic agreement, each country
agreed to keep the exchange rate between its currency and other currencies within narrow bands. If those bands became
indefensible, the pegged exchange rate could be readjusted and new bands set up. See Fixed Exchange Rates. Contrast with
Floating Exchange Rates.
Adjustable Rate — Applies mainly to Convertible Securities. Refers to interest rate or dividend that is adjusted periodically,
usually according to a standard market rate outside the control of the bank or savings institution, such as that prevailing on U.S.
Treasury bonds or notes. Typically, such issues have a set floor or ceiling, called Caps and Collars that limits the adjustment.
Adjustable Rate Loan — A loan whose rate of interest is adjusted or changed at periodic intervals based upon some standard rate
of interest (i.e., an index or loan benchmark rate) as specified in the original loan agreement. Also referred to as a Variable Rate
Loan. Also see Adjustable Rate Mortgage (ARM).
Adjustable Rate Mortgage (ARM) — (1) A mortgage that features predetermined adjustments of the loan interest rate at regular
intervals based on an established index. The interest rate is adjusted at each interval to a rate equivalent to the index value plus
a predetermined spread, or margin, over the index, usually subject to per-interval and to life-of-loan interest rate and/or payment
rate caps. (2) A mortgage loan which has a coupon or interest rate that is subject to change on predetermined reset dates. This
form of Variable Rate Loan uses interest rate indices as the benchmark rate. ARMs come in many variations. Typically, the
reset dates recur every 1, 3, or 5 years; but there are other periods used as well. These loans may have cap and floor features
which constrain each reset change in interest rates. There may also be lifetime cap and floor features. ARMs may be strictly

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Business and Economic Research Group Dictionary of Financial Words
amortizing though some have negative amortization features. (3) Similar to an Adjustable Rate Loan, a mortgage with periodic
adjustments in its interest rate, usually done every six months. ARM interest rates are calculated against an standard index rate,
for example, the six-month U.S. Treasury bill rate or the Federal Home Loan Bank of San Francisco cost of funds, or some other
agreed-to rate of interest. Such loans also most typically have certain protections for the borrower to limit the rapid escalation
in interest rates and mortgage payments by limiting the frequency of adjustments and limiting the rate changes within a year and
over the life of the loan. Sometimes lenders may offer a “teaser rate” on ARMs to entice new customers, knowing that rates may
be adjusted later with rising market rates of interest. (4) A type of real estate loan in which either the interest rate charged or the
length of the loan, or both, can change. Adjustable rate mortgages became very popular during the high interest rate volatility
period of the early 1980's due primarily to the reluctance of lenders to quote a fixed interest rate loan to potential borrowers. By
using an ARM, a lender is able to pass on much of the uncertainty of changes in interest rates to the borrower if rates change
during the life of the loan. ARMs are normally tied to some index such as the interest rate on U.S. government securities. ARMs
may also be referred to as Adjustable Mortgage Loans (AMLs) or Variable Rate Mortgages (VRMs).
Adjustable Rate Preferred Stock (ARPS) — (1) Publicly traded issues that may be collateralized by mortgages and Mortgage
Backed Securities (MBS). (2) A perpetual preferred stock with a floating dividend rate reset each quarter and based upon the
highest of three benchmark U.S. Treasury rates (three-month U.S. Treasury bill, or 10-year U.S. Treasury note, or 10- or 20-year
U.S. Treasury bond). ARPs have a minimum and a maximum dividend allowable rate which is known as a Collar.
Adjusted Cost Basis — The value of property for accounting purposes used to determine the amount of gain or loss realized by the
owner upon the sale of the property.
Adjusted Debit Balance (ADB) — The account balance for a margin account that is calculated by combining the balance owed to
a broker with any outstanding balance in the special miscellaneous account, and any paper profits on short accounts.
Adjusted Exercise Price — Term used in options on Government National Mortgage Association (GNMA or “Ginnie Mae”)
contracts. The final exercise price of the option accounts for the coupon rates carried on Ginnie Mae mortgages. For example,
if the standard GNMA mortgage has an 9 percent yield, the price of GNMA pools with 13 percent mortgages in them is altered
so that the investor receives the same yield.
Adjusted Futures Price — The cash-price equivalent reflected in the current futures price. This is calculated by taking the futures
price times the conversion factor for the particular financial instrument (e.g., bond or note) being delivered.
Adjusted Gross Income (AGI) — A federal tax term applying to the difference between the gross income of the taxpayer and
adjustments to income. Adjustments to income include deductions for Individual Retirement Accounts (IRA) and Keogh pension
plans. Adjusted gross income is the basis for determining the eligibility and limitations of other components in calculating the
taxpayer’s tax obligation, such as for medical expenses (i.e., 7.5 percent of AGI) and miscellaneous expenses (i.e., 2 percent of
AGI). See Taxable Income.
Adjusted Present Value (APV) — The net present value analysis of an asset if financed solely by equity (present value of
unleveraged cash flows), plus the present value of any financing decisions (levered cash flows). In other words, the various tax
shields provided by the deductibility of interest and the benefits of other investment tax credits are calculated separately. This
analysis is often used for highly leveraged transactions such as a leveraged buyout.
Adjusted Sales Price — The estimated sales price of a comparable property after additions and/or subtractions have been made to
the actual sales price for improvements and deficiencies when compared to the subject property being appraised.
Adjusting Entries — Those entries resulting from an attempt to reflect in the accounts various changes that may be appropriate
although no source document is normally available; usually made to align recorded costs or revenues with the accounting period
or to reflect unrecorded revenues and costs.
Adjustment — An accounting term used to describe an entry to account for entries not previously posted, transfers to subsidiary
accounts, or to correct for pervious accounting errors.
Adjustment Interval — On an Adjustable Rate Mortgage (ARM), the time between changes in the interest rate and/or monthly
payment, typically one, three or five years, depending on the index.
Adjustments — The additions and subtractions made in the market data or comparable sales approach to value to account for
differences in location, design, age, etc. between the properties being used as comparables and the subject property being
appraised.
Administered Prices — According to some economists, some large corporations in specific industries in the U. S. economy are not
subject to price competition. Instead, they have some leeway to administer their product prices to maximize profits. As a
consequence, many product prices do not fluctuate as much as would be expected on the basis of shifts in supply and demand
and under conditions of Perfect Competition. Also see Monopolistic Competition.
Administrative Lag — The time lapse between the recognition of a problem in the economy (e.g., rising unemployment, inflation,
slowing economic output, inventory levels, etc.) and when a policy action (e.g., Monetary Policy, Fiscal Policy, Incomes Policy)
is undertaken to correct it. Also see Recognition Lag and Impact Lag. Also referred to as the Enactment Lag.
Administrator (Administratrix) — A person appointed by the court to settle the estate of a person who dies without a will. The
feminine form is administratrix. Compare to Executor and Executrix.
Administrator’s Deed — A conveyance of property which is issued to a grantee (purchaser) who purchases property from an estate.
ADR — See American Depository Receipt.
ADS — See American Depository Share.
Adult — (Legal) A person who has attained the age of majority and thus has the legal capacity to be bound under a contract. The
age of majority varies from state to state.
Advance — The word has two common meanings in lending and real estate finance: (1) to pay or advance money before it is due,
and (2) to disburse working capital to a builder/developer through a construction loan. Under the first meaning, an owner might

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Dictionary of Financial Words GREAT BASIN RESEARCH

have both a first mortgage and a second mortgage on a parcel of real estate.
Advance Computerized Execution System (ACES) — Refers to the computer order execution system run by the National
Association of Securities Dealers Automated Quotations (NASDAQ). ACES automates trades between order entry
and market maker firms that have established trading relationships with each other. Securities are designated as specified for
automatic execution.
Advance-Decline (A-D) — A measurement of the number of issues trading above their previous closing prices less the number
trading below their previous closing prices over a particular period. As a technical measure of market breadth, the steepness of
the A-D line indicates whether a strong Bull Market or Bear Market is under way.
Advance Funded Pension Plan — A Pension Plan in which funds are set aside in advance of the date of retirement.
Advance Refunding — (1) The issuance of debt instruments to refund existing debt before it matures or is Callable. Also see
Advanced Refunding and Yield Burning. (2) In the context of municipal bonds, refers to the sale of new bonds (the refunding
issue) before the first call date of old bonds (the issue to be refunded). The refunding issue usually specifies a rate lower than
the issue to be refunded, and the proceeds are invested, usually in government securities, until the higher-rate bonds become
callable. Also see Refunding Escrow Deposits.
Advance Refunding Bonds — Bonds issued to refinance an outstanding bond issue before the date the outstanding bonds become
due or Callable. Proceeds of the advance refunding bonds are deposited in Escrow with a fiduciary, invested in U.S. Treasury
bonds or some other authorized securities and used to redeem the underlying bonds at their maturity or call date, to pay interest
on the bonds being refunded, or to pay interest on the advance refunding bonds. Also see Yield Burning.
Advanced Refunding — The technique of replacing one bond issue by another. This typically occurs when a municipality can
borrow at more favorable terms than the outstanding issue. The new issue’s proceeds are used to purchase government
obligations which are held in Escrow. The income and/or appreciation of these government securities is then used to service the
outstanding debt. The escrow may be held until the first call date or maturity of the initial bond issue. If the escrowed funds
retire the original issue at the first call date then the issue is pre-refunded. This retirement and replacement process of debt is
also known as Defeasance.
Adverse Opinion — An opinion stating the auditor’s view that financial statements do not present fairly financial position, results
of operations, or changes in financial position in conformity with Generally Accepted Accounting Principles (GAAP).
Adverse Possession — (1) A method of acquiring title to real property by possession for a statutory period of time. (2) The hostile
possession of real estate, which when actual, blatant, visible, notorious, exclusive, and continued for the required number of years,
will vest the title to the land in the person in such adverse possession. (3) The actual, exclusive, open, notorious, hostile, and
continuous possession and occupation of real property under an evident claim of right or title. The time required legally to obtain
title by adverse possession varies from state to state.
Adverse Selection — A problem faced by insurance companies when those who buy insurance make up a Biased Sample such that
their probability of loss differs markedly and, from the point of view of the company, adversely from the population at large.
Advising Bank — A correspondent of an issuing bank that notifies the beneficiary of a letter of credit without adding its own
engagement to that of the issuing bank.
Aesthetic Value — The intangible value of property created when the property possesses unique characteristics or features that make
it attractive.
Affiant — The person who makes an Affidavit.
Affidavit — Latin meaning “has pledged his faith.” A written statement of facts made voluntarily and sworn to under oath before
a public official or other persons authorized to administer such an oath.
Affidavit of Title — A sworn statement by the seller of real estate that no defects of title (Defective Title) other than those stated
in the sales contract or deed exist in the title being conveyed.
Affiliate — A related entity or company. See Subsidiary.
Affirm — Ratification of a voidable contract by the party who is to be bound under the contract.
Affirmation — A solemn and formal declaration attesting to the truth of some matter. In certain instances, an affirmation is
substituted for an oath, as for example when a person for religious or personal reasons does not wish to take an oath.
Affirmative Fair Housing Marketing Plan — Action taken with the intent of encouraging minority integration in housing. The
Department of Housing and Urban Development (HUD) has required an affirmative fair housing marketing plan from all
subdivisions, multi-family projects, and mobile home parks of five or more units before these projects are eligible for
participation in various federal programs, including home mortgage loan programs.
After Acquired Title — Legal ownership in real property acquired by someone who had previously transferred his or her legal
interest in the property.
Aftermarket — Refers to trading in the Secondary Market following a new securities issuance.
After-Tax Basis — A method for comparing the returns on a taxable security and a tax-free municipal bond or security by adjusting
for unique tax liability effects.
After-Tax Cash Flow — (1) The net amount of any receipt or expenditure after incorporating the effects of income taxes. (2) The
spendable cash from an income-producing asset, such as an office building or apartment complex, calculated by taking gross
income and subtracting fixed and variable costs, replacement for reserves, debt service plus tax savings or minus tax liability.
After-Tax Equity Yield Rate — The Internal Rate of Return (IRR) on the equity investment after considering federal income taxes.
After-Tax Proceeds from Resale — The amount of money a property seller would receive from a property sale after subtracting
transaction costs, capital gains taxes, and other expenses. Generally, this figure is calculated by taking the selling price less the
sum of the existing debt, the income or capital gains taxes, and the expenses of sale.

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Business and Economic Research Group Dictionary of Financial Words
Ag Land — Land zoned for agricultural use such as farmland or land used to raise livestock.
Against Actuals — A commodity market transaction whereby Futures are exchanged or transferred against a cash position. Also
referred to as Against Cash. See Exchange for Physicals.
Against Cash — See Against Actuals.
Age-Life Method — A method of estimating Accrued Depreciation by applying to the replacement cost of the property the ratio
of the property’s Effective Age to its Economic Life.
Agency — (1) A relationship in which the agent is given the authority to act on behalf of another person (the principal). (2) A
relationship in which one party (known as the principal) authorizes another party (the agent) to act as the principal’s
representative in dealing with third parties. Agency law generally involves rights and liabilities among these three parties.
Agency (Securities) — A security issued by a government organization, but not the U.S. Treasury. These organizations include:
the Federal Home Loan Mortgage Corporation (FHLMC or “Freddie Mac”), the Federal National Mortgage Association (FNMA
or “Fannie Mae”), the Government National Mortgage Association (GNMA or “Ginnie Mae”).
Agency Pass-Throughs — Mortgage pass-through securities whose principal and interest payments are guaranteed by government
agencies, such as the Government National Mortgage Association (GNMA, or “Ginnie Mae”), the Federal Home Loan Mortgage
Corporation (FHLMC, or “Freddie Mac”), and the Federal National Mortgage Association (FNMA, or “Fannie Mae”).
Agent — (1) A person authorized to act for another (a principal). (2) One who acts for and in the place of a principal for the purpose
of affecting the principal’s legal relationship with third persons. The power of an agent to affect the principal’s legal relations
for lawful purposes is called Authority. The term may apply to a person in the service of another, but in the strict sense an agent
is one who stands in place of the principal. If “A” works for “B” as a secretary, then “A” is a servant in the legal sense, but “A”
may also be an agent. If “A” takes orders for “B”, he acts in place of “B” and is an agent.
Agreement — An expression of mutual assent, or a meeting of the minds, by two or more parties on a given proposition.
Aggregate Demand (AD) — (1) The basis of estimating the total demand for goods and services in an economy; consists of (a)
Personal Consumption Expenditures (PCE); (b) business investment spending to include expenditures for new housing units;
(c) net exports (exports minus imports); and (d) government spending. (2) A curve showing the demand for the total output of
the economy (real Gross Domestic Product, or GDP) as a function of its price. Equivalent to the expenditure approach for the
determination of total economic output or GDP.
Aggregate Supply (AS) — (1) The sum of all goods and services produced in the domestic economy in a specific period of time.
(2) A curve showing the total supply of output (real Gross Domestic Product, or GDP) as a function of its price.
Aggressive Growth — A term referring to an investment strategy which places emphasis on maximizing growth and capital gains
versus emphasis on asset quality, security, and income.
Aggressive Growth Mutual Fund — a Mutual Fund designed for maximum capital appreciation that places its money in companies
with high growth rates.
Aggressively — (1) For a customer it means working to buy or sell one’s stock, with an emphasis on execution over price. (2) For
a trader it means acting in a way that puts the firm’s capital at higher risk through paying a higher price, selling cheaper, or
making a larger short sale or purchase than the trader would under normal circumstances.
AGI — See Adjusted Gross Income.
Aging — The concept which assumes that newly issued mortgages tend to prepay more slowly than mortgages which are older or
seasoned. This aging refers to the underlying collateral and not the securities created upon that collateral.
Aging Schedule — (1) A report showing how long accounts receivable have been outstanding. It gives the percent of receivables
not past due and the percent past due by, for example, one month, two months, or other time periods. (2) An accounting by
category of a company’s trade account receivables by date of sale; used primarily by lenders to assess the quality of a company’s
outstanding credits (receivables) as a basis for lending decisions.
Agreement Among Underwriters — A contract among participating members of a Underwriting Syndicate that defines the
members’ proportionate liability, which is usually limited to and based on the participants’ level of financial involvement. The
contract outlines the payment schedule on the settlement date. Compare to Underwriting Agreement.
Agreement Corporation — A federally or state-chartered corporation that has entered into an agreement or understanding with the
Board of Governors of the Federal Reserve System that it will not exercise any power that is impermissible for an Edge Act
Corporation.
Agreement of Sale — (1) Known by various names, such as contract of purchase, purchase agreement, or sales agreement according
to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and
conditions spelled out in writing and signed by both parties. (2) An agreement between parties for the sale of real estate. In some
states it is synonymous with a purchase agreement, sales agreement, or land contract or earnest money contract.
Agricultural Loan Program — A federal program in which the government lends money at pre-announced rates to farmers and
allows them to use the crops they plant for the upcoming crop year as collateral for the loan. Default on these loans is the primary
method by which the government acquires stock of agricultural commodities by taking possession of the underlying collateral
of crops.
Agricultural Property — Land zoned for agricultural or farming activities.
AIBD — Association of International Bond Dealers.
AICPA — The American Institute of Certified Public Accountants, the national professional organization of Certified Public
Accountants (CPA) in the United States.
Air Rights — The right to use, control and occupy the space above a particular parcel of real estate.
ALCO — Acronym for Asset-Liability (Management) Committee. Term used frequently in banking industry.
Alienation — The voluntary transfer of property and possession of the land or tenements from one party to another.

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Dictionary of Financial Words GREAT BASIN RESEARCH

Alienation Clause — (1) Provision in a mortgage document stating that the loan must be paid in full if ownership is transferred.
(2) A provision often included in a mortgage or deed of trust that legally permits the lender (mortgagee) to demand payment of
all the outstanding principal if the property is sold or transferred by the borrower (mortgagor). Such a provision is also commonly
known as a Due-on-Sale Clause.
All-or-None (AON) — (1) Also called “All-or-Nothing.” Under these conditions, the order must be completed in its entirety or not
at all. In this case there are no partial fills. (2) A limited price order that is to be executed in its entirety or not at all (no partial
transaction), and thus is testing the strength/conviction of the counter-party. Unlike an FOK order, an AON order is not to be
treated as cancelled if not executed as soon as it is represented in the trading crowd, but instead remains alive until executed or
cancelled. The making of “all or none” bids or offers in stocks is prohibited, and the making of “all or none” bids or offers in
bonds is subject to the restrictions of Rule 61. AON orders are not shown on the specialist’s book because they cannot be traded
in pieces. Opposite of Any-Part-of Order. Also see Fill-or-Kill (Order).
Allocation (Assets) — See Asset Allocation.
Allocation (of Resources and Goods) — Deciding which resources will be used for which purposes and how the outputs of the
economy will be distributed among the people. A fundamental principle of the study of economics which assumes that resources,
or factors of production – i.e., land, labor, capital, and entrepreneurship – will gravitate to their most productive uses based on
prices. In efficient markets, pricing decisions are used to insure that resources are used (allocated) most efficiently in accordance
with the needs of society.
Allocation (Abstraction) Method — An appraisal technique used to estimate the value of the site (land) by deducting the value of
the improvements from the total sales price of the property.
Allocative Efficiency — See Economic Efficiency.
Allocative Inefficiency — See Economic Inefficiency.
Allodial System — The free and complete ownership of land by individuals. The allodial system is the system of property ownership
in America today. The term allodial means free from the tenurial or vested rights of the king or feudal overlord.
Allowance for Amortization — The account in which are accumulated the amounts recorded as amortization of the intangible asset
to which the allowance relates.
Allowance for Depreciation — The account in which are accumulated the amounts of cost of the related asset which have been
charged to expense.
Allowance for Uncollectible Accounts — A contra asset account with a normal credit balance shown on the balance sheet as a
deduction from Accounts Receivable to reflect the expected realizable amount of accounts receivable.
Allowance for Uncollectibles — A contra-asset valuation account used to indicate the portion of a receivable not expected to be
collected.
Allowance Method — An accounting procedure whereby in the period in which credit sales occur the related amount of uncollectible
accounts expense is estimated and recorded in the contra asset account allowance for uncollectible accounts.
ALM — See Asset-Liability Management.
Alonso, William — An urban economist who believed that urban sites are composed of both land and location. In his book, Location
and Land Use, Alonso explained the trade-off that exists between land rent and the transportation cost incurred by individuals
in determining where to locate within an urban area.
Alpha (Measure) — (1) The rate of price appreciation of a stock or security, typically expressed in units of percent per period. (2)
A mathematical measure of price volatility that attempts to isolate the price movements of a stock from those of the market. A
stock with a high alpha is expected to perform well regardless of what happens to the market as a whole. (3) A measure of the
incremental reward (or loss) that an investor gained in relation to the market. Typically, this is measured as performance of a
selected portfolio relative to a market benchmark. For example, an enhanced Standard & Poor’s 500 portfolio might have an
alpha of 0.25, which means that the pickup was 0.25%, or a quarter point better than the standard. (4) A measure of risk-adjusted
performance. An alpha is usually generated by regressing the security or Mutual Fund’s excess return on the Standard & Poor
500 excess return. The Beta adjusts for the risk (the slope coefficient). The alpha is the intercept. As an example, suppose the
mutual fund has a return of 25 percent, and the short-term interest rate is 5 percent (excess return is 20 percent). During the same
time the market excess return is 9 percent. Suppose the beta of the mutual fund is 2.0 (twice as risky as the S&P 500). The
expected excess return given the risk is 2 x 9% = 18%. The actual excess return is 20%. Hence, the alpha is 2 percent or 200
basis points. Alpha is also known as the Jensen Index. See Beta. Also see Risk-Adjusted Return.
Alteration — An unauthorized modification of a contract by one of the parties to the contract. The alteration is considered material
when it affects the rights of the parties to the contract. If the alteration is intentional and material, it will be treated as fraud and
the innocent party may void the contract at his or her option.
Alternative Investments — Are usually investments other than Mutual Funds, certificates of deposit, or direct investments in
equities and bonds. Some of these alternatives are: art, collectibles, commodities, commodity funds, commodity pools,
derivatives, foreign exchange, hedge funds, oil and gas, precious metals, and real estate ventures.
Alternative Minimum Tax (AMT) — (1) An alternate income tax to ensure that individual and corporate taxpayers with a very large
number of deductions, credits, and/or exemptions do not escape all tax liabilities. (2) A levy designed with the intent that
everyone should pay a fair share of tax. According to the Tax Act of 1993, the base exemption is $33,750 for single taxpayers
and $45,000 for married taxpayers filing jointly. The tax rate is 26 percent for those taxpayers having up to $175,000 over the
exemption amount and 28 percent for amounts exceeding $175,000. In the case of corporations, the AMT is tied to the regular
taxable income adjusted for tax preference items. A 20 percent rate is then used.
Alternative Mortgage Instruments — Variations of mortgage instruments such as Adjustable-rate Mortgages (ARMs) and
variable-rate mortgages, Graduated-Payment Mortgages (GPMs), reverse-annuity mortgages, and several seldom-used

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Business and Economic Research Group Dictionary of Financial Words
variations.
Alternative Order — Used in context of general equities. A customer order giving a broker a choice between two courses of action,
either to buy or to sell, but never both. Execution of one course automatically eliminates the other. An example is a combination
buy limit/buy stop order, where the buy limit is below the current market and the buy stop is above. If the order is for one unit
of trading, when one part of the order is executed on the occurrence of one alternative, the order on the other alternative is to be
treated as cancelled. If the order is for an amount of more than one unit of trading, the number of units executed determines the
amount of the alternative order to be treated as cancelled. Also see Either-or Order.
Ambient Standards — Government rules specifying maximum quantities of pollutants a unit of the environment may contain.
Amenity — (1) A feature or benefit received from a particular parcel of property which increases the satisfaction received by the
owner or user of that property. Amenities may be both natural, for example, location or scenic view, and manmade, such as a
swimming pool or tennis courts. Both material and man-made amenities increase the desirability of a certain location or parcel
of land and thus that particular land will normally have a higher value than a parcel of land without the amenities. (2) In
appraising, those qualities that attach to property in the benefits derived from other than monetary. Satisfactions of possession
and use which arise from architectural excellence, scenic beauty and social environment.
American Accounting Association (AAA) — An organization primarily of accounting academicians emphasizing the development
of a theoretical foundation for accounting. Its research with respect to education and theory is distributed through committee
reports and a quarterly journal, The Accounting Review.
American Association of Individual Investors (AAII) — A not-for-profit organization to educate individual investors about stocks,
bonds, mutual funds, and other financial instruments.
American Bankers Association (ABA) — Membership in the American Bankers Association is comprised of persons employed
in the commercial banking business. The organization serves as a spokesman for the banking community and conducts training,
seminars, and educational programs, such as the Stonier Graduate School of Banking. The Association is headquartered at
Connecticut Avenue, N.W., Washington, D.C. 20036.
American Depositary Receipt (ADR) — (1) An instrument which is issued in the United States but based on foreign securities.
This security facilitates trading and investment because it is quoted in terms of the U.S. dollar. This compares to the initial
situation of the underlying shares quoted and traded in currencies other than the U.S. dollar. (2) Certificates traded on U.S. stock
exchanges or the Over-the-Counter Market, representing ownership of a specific number of shares of a foreign stock. (3) ADRs
are certificates issued by a U.S. bank, consisting of a bundle of shares of a foreign corporation that are being held in custody
overseas. ADRs can be “sponsored,” which means the corporation provides financial and other information to the bank, or
“unsponsored.” While ADRs have the same currency and economic risks as the underlying foreign shares, they are much more
convenient for U.S. shareholders to own since there are no problems in transferring securities from a foreign country or in terms
of currency conversion. (4) Certificates issued by a U.S. depository bank, representing foreign shares held by the bank, usually
by a branch or correspondent in the country of issue. One ADR may represent a portion of a foreign share, one share or a bundle
of shares of a foreign corporation. If the ADR’s are “sponsored,” the corporation provides financial information and other
assistance to the bank and may subsidize the administration of the ADR. “Unsponsored” ADRs do not receive such assistance.
ADRs are subject to the same currency, political, and economic risks as the underlying foreign share. Arbitrage keeps the prices
of ADRs and underlying foreign shares, adjusted for the SDR/ordinary ratio essentially equal. American Depository Shares
(ADS) are a similar form of certification.
American Depository Share (ADS) — Foreign stock issued in the US and registered in the American Depository Receipt (ADR)
system.
American Economic Development Council (AEDC) — The American Economic Development Council is an international
organization whose mission is to advance the art and science of economic development. AEDC publishes a journal, Economic
Development Review, and awards the professional designation CIDICED (Certified Industrial or Economic Developer). The
council’s address is Suite 22, 4849 North Scott Street, Schiller Park, Illinois 60176.
American Institute for Property and Liability Underwriter — The American Institute for Property and Liability Underwriters
is the main professional organization of property insurance agents. In addition to numerous educational programs and seminars,
a professional designation, CPCU (Chartered Property Casualty Underwriter), is sponsored by the institute. The mailing address
is Providence and Sugartown Roads, Malvern, Pennsylvania 19355.
American Institute of Architects — This institute awards the designation AL4 and is the primary group for promoting architecture
as a profession. Among the group’s activities is its national committee on housing which provides numerous services in an effort
to improve the quality of the living environment. The institute is located at 1735 New York Avenue, N.W., Washington, D.C
20006.
American Institute of Certified Public Accountants (AICPA) — A professional organization of practicing Certified Public
Accountants (CPAs). The “Institute” develops standards of practice for its members and provides technical guidance and advice
to both governmental agencies, for example, the Securities and Exchange Commission (SEC), and AICPA membership. The
AICPA publishes the Journal of Accountancy and The Tax Adviser. The AICPA puts out many publications in the areas of
accounting, auditing, taxation, and management services. For example, the Statements on Auditing Standards (SAS) are
promulgated by the AICPA.
American Institute of Housing Consultants — This organization works with nonprofit sponsors in developing low-income housing.
The institute also serves as a spokesman for low-income housing.
American Land Development Association (ALDA) — The American Land Development Association is a trade organization
comprised primarily of land developers. The association’s primary function is to represent the interstate land development
industry in matters related to land development. The mailing address is 1200 L Street, N.W., Washington, D.C. 20005.

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Dictionary of Financial Words GREAT BASIN RESEARCH

American Land Title Association (ALTA) — An association, founded in 1907, representing more than 2,100 title abstractors, title
insurance companies, title insurance agents, and associate members. Since the role and responsibility of the title industry, and
of its ALTA members, is to guarantee the safe, efficient transfer of real property, the ALTA membership functions cooperatively
and effectively to provide protection for consumers and lenders alike. Members of the association use standardized title insurance
forms developed by ALTA to provide uniformity within the industry. The ALTA staff represents specialists in the fields of
government relations, public affairs, research, and state governmental affairs. ALTA’s national headquarters is located at 1828
L Street, N.W., Suite 303, Washington, D.C. 20036.
American Planning Association (APA) — A professional trade association comprised of both publicly and privately employed
planners. APA was formed by the merger of the American Institute of Planners and the American Society of Planning Officials.
The association is located at 1313 East 60th Street, Chicago, Illinois 60637.
American Real Estate and Urban Economics Association (AREUEA) — The principal professional organization of real estate
education, AREUEA consist of both educators and professional practitioners. The association publishes a journal of articles
dealing with land use, urban economics and related topics.
American Society of Appraisers — An appraisal organization consisting of persons involved in the appraisal of both real and
personal property. The society sponsors the designation ASA. The society’s mailing address is Dulles International Airport, P.O.
Box 17265, Washington, D.C. 20041.
American Society of Consulting Planners — A professional society whose membership is limited to private planning firms. The
society offers various services to its members and serves as a spokesman for consulting planners. The address is Suite 647, 210
7th Street, S.E., Washington, D.C. 20003.
American Society of Home Inspectors, Inc. (ASHI) — A professional trade organization whose membership specializes in the
physical inspection of homes. ASHI publishes numerous pamphlets and proceedings, conducts seminars and provides a Standards
of Practice. The society’s address is 7th Floor, 3299 K Street, N.W., Washington, D.C. 20007.
American Society of Real Estate Counselors (ASREC) — As an affiliate with the National Association of Realtors, this society
consists of real estate brokers, appraisers, and consultants involved in assisting people in the buying and selling of real estate.
The professional designation CPE (Counselor, Real Estate) is awarded by the society. The mailing address is 430 North
Michigan Avenue, Chicago, Illinois 60611.
American Stock Exchange (AMEX) — The second largest stock exchange in the United States measured in terms of trading volume
(after the New York Stock Exchange (NYSE)). As distinguished from the NYSE, the AMEX tends to list securities of more small
and medium sized companies, but also handles options trading for a number of companies listed on the NYSE. The AMEX is
also more active in foreign security trades than the NYSE. In October 1998, the AMEX merged with the National Association
of Security Dealers (NASD) and became the NASDAQ–AMEX Market Group.
American Style — An Option which permits exercise prior to the indicated expiration date. This compares to an European Style
option which can only be exercised on the expiration date. Also see Asian.
AMEX — Acronym for the American Stock Exchange, located in New York City. In October 1998, the AMEX merged with the
National Association of Security Dealers (NASD) and became the NASDAQ–AMEX Market Group.
Amortization (Amortize) — (1) Accounting for expenses or charges as applicable rather than as paid; includes such practices as
depreciation, depletion, write-off of intangibles, prepaid expenses, and deferred charges. (2) The repayment of a loan by
installments; i.e., to liquidate on an installment basis; an amortized loan is one in which the principal amount of the loan is repaid
in installments during the life of the loan; (3) The periodic paydown of principal. This is a common feature of most mortgages.
Amortize also refers to the accounting write down or reduction in an intangible asset. This creates a periodic charge against
income. Amortization can also refer to the reduction in the cost basis of a bond purchased at a premium to par. Sometimes,
amortization is used as a synonym for depreciation or other write down of an asset or liability. In the later capacity it tends to
apply to intangible assets, e.g., Goodwill. (4) The repayment of a financial obligation over a period of time in a series of periodic
installments. Specifically, this is the payback of the principal owed to the lender. The effect of amortization is to build up the
paper value of the investor’s (owner’s) equity and to reduce the debt obligation. It should be noted that a portion of each payment
consists of a blend of interest and the amortization of principal. The interest portion is tax deductible, whereas the amortization
is not.
Amortization of Premium — A charge made against interest income on bonds to offset any premium paid for their purchase price
above their Par Value or Call Price.
Amortization Rate — The percentage of a periodic payment that is applied to the reduction of the principal; in a level-payment
mortgage this corresponds to the sinking fund factor.
Amortization Schedule (Table) — A detailed accounting of the amortization of a loan to include beginning period principal
amounts, period payments, interest portion of each period payment, principal reduction portion of each period payment, and the
ending period balance.
Amortization Term — (1) The time period over which the principal amount would be retired for a loan on the basis of the periodic
installments paid. (2) For a loan, the period of time during which principal and interest payments must be made; generally the
time needed to amortize the loan fully.
Amortized Loan — (1) A financial obligation that is repaid over a period of time by a series of periodic payments. (2) A loan to
be repaid, interest and principal, by a series of regular payments that are equal or nearly equal, without any special Balloon
Payment prior to maturity.
AMPS — See Auction Market Preferred Stock.
Anaconda Mortgage — A type of mortgage in which a clause is included which states that the mortgage secures all debts of the
mortgagor (borrower) that may be due and payable to the mortgagee (lender). Such a provision is also referred to as a “Mother

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Business and Economic Research Group Dictionary of Financial Words
Hubbard” clause.
Analyst — (1) An individual who performs various studies and calculations to help make decisions or solve problems concerning
real estate investments. (2) Also known as a financial analyst or security analyst. Analysts have expertise in evaluating
investments, and typically are employed by brokerage firms, investment advisors or Mutual Funds. They make buy, sell and
hold recommendations on securities, and many specialize in specific industries or particular sectors of the economy.
Anchor Tenant — A well-known commercial retail business such as a national chain store or regional department store strategically
placed in a shopping center so as to generate the most amount of customers for all of the stores located in the shopping center.
Also referred to as the Anchor Store.
And Interest — A quotation term indicating that Accrued Interest is to be added to the price of a bond, i.e., the price quoted is
exclusive of the interest.
Annexation — (1) The attachment of personal property to realty in such a way as to make it become real property and part of the
realty. (2) The act of adding, joining and attaching one thing to another. With respect to the annexing of land, from time to time
municipalities legally incorporate into the existing town or city limits a certain amount of land or territory outside their legal
boundary. This may be done to consolidate two governments into one or perhaps to increase property tax revenue for the
municipality.
Announcement Effect — The reaction by the financial markets to reports or press releases from regulatory bodies, such as the
reported growth in the money supply, inflation measures, growth in national economic output (real Gross Domestic Product, or
GDP), trade figures, and the like. Such releases are normally undertaken by officials in either the U.S. Treasury Department or
the Federal Reserve Board prior to taking action.
Annual — Occurring once a year. Contrast with Semi-Annual and Biennial.
Annual (Loan) Cap — A specific limitation contained within an Adjustable Rate Mortgage (ARM) agreement or other variable rate
loan document which sets the maximum upward limit of adjustment for a year or for the life of the loan, irrespective of the
adjustments made to the loan’s index rate.
Annual Debt Service — The total payments required, consisting of both principal and interest, in one year in regard to the repayment
of a loan. The amount of payment is affected by either a change in the interest rate or a change in the payback period.
Annual Loan Constant — A ratio of the annual debt payment on a loan to the original amount borrowed. The loan constant is also
referred to as a Mortgage Constant.
Annual (Stockholders’) Meeting — A yearly gathering of a company’s senior management, the Board of Directors, and
shareholders in which the shareholders may vote on various corporate matters, such as the election of the company’s board of
directors, management’s recommendation of the use of an outside auditing firm, management proposals and changes in company
by-lays, and other matters.
Annual Percentage Rate (APR) — (1) The periodic rate times the number of periods in a year. For example, a 5 percent quarterly
return has an APR of 20 percent. (2) The cost of credit in consumer loans measured as an annual rate of interest. The APR takes
into consideration the reduction (i.e., Amortization) of the outstanding loan balance through periodic payments. Under conditions
in the federal Truth in Lending Act, the APR must be listed in loan agreements and disclosed within 0.125 percent (i.e., 1/8
percentage point). (3) The effective annual rate of interest being charged on a credit agreement. The APR may differ from the
stated rate. (4) A measure of the total cost of credit (interest as well as other recurring charges) expressed as a yearly percentage
rate. Because all lenders apply the same rules in calculating the annual percentage rate, it provides consumers with a good basis
for comparing the cost of loans.
Annual Percentage Yield (APY) — (1) The amount of interest earned on a deposit account expressed as a percentage rate assuming
a fixed principal amount and that the funds remain on deposit for a full 365-day (one year) accounting period. (2) The effective,
or true, annual rate of return. The APY is the rate actually earned or paid in one year, taking into account the effect of
Compounding. The APY is calculated by taking one plus the periodic rate and raising it to the number of periods in a year. For
example, a 1 percent per month rate has an APY of 12.68 percent as calculated by (1.0112 -1) times 100 (to convert to a
percentage figure.
Annual Rate of Return (ARR) — There are many ways of calculating the annual rate of return. If the rate of return is calculated
on a monthly basis, we sometimes multiply this by 12 to express an annual rate of return. This is often called the Annual
Percentage Rate (APR). The Annual Percentage Yield (APY), by contrast, includes the effects of Compounding interest
payments.
Annual Report — An audited report provided yearly to shareholders of a publicly-owned corporation disclosing a company’s annual
financial performance, as required by the Securities and Exchange Commission (SEC). Typically a glossy, colorful publication,
contents include a management discussion of financial performance, balance sheet and income statement, changes in financial
position and capital accounts, and notes to financial statements as well as an outside accountant’s opinion letter attesting to the
completeness and presentation of the financial information. The annual report to shareholders required by the SEC is also
referred to as the Form 10-K.
Annualized Gain — If a particular stock appreciates 1.5 percent in one month, the annualized gain for that stock over a twelve-
month period is 12 x 1.5 percent = 18 percent. However, if these gains are compounded over the same twelve-month period, the
gain is ((1.015)12 -1) x 100 = 19.6%.
Annuitant — The party receiving Annuity payments. A person entitled to or currently receiving payments from an annuity.
Annuities Payable — A liability account which records the amount of annuities due and payable to retired employees in a private
corporation or as part of a Public Employee Retirement System (PERS).
Annuitize — To commence a series of payments from the capital that has accumulated in an Annuity. The payments may be a fixed
amount, for a fixed period of time, or for a lifetime.

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Dictionary of Financial Words GREAT BASIN RESEARCH

Annuity — (1) An investment that produces a series of equal payments or cash flows for a limited number of periods. (2) A series
of regular payments, usually from an insurance company, guaranteed to continue for a specific time, usually the annuitant’s
lifetime, in exchange for a single payment or a series of payments to the company. With a Deferred Annuity, payments begin
sometime in the future. With an immediate annuity, payments begin right away. A fixed annuity pays a fixed income stream
for the life of the contract. With a variable annuity, the payments may change according to the relative investment success of
the insurance company. (3) A contract by which an insurance company agrees to make regular payments to someone for life or
for a fixed period. See Fixed Annuity and Variable Annuity. (4) An insurance product which comes in two basic forms: fixed
and variable. The fixed version can make a lump sum or periodic lifetime payments to the annuitant. The variable version has
a separate account attached to the annuity contract. This type of contract is considered a security because it is dependent on the
value of the underlying equities and its total value is subject to fluctuate due to market risk. There are many annuity varieties.
Some of these are: (a) Annuity Certain; (b) Annuity Due; (c) Deferred Annuity; (d) Fixed Annuity; (e) Life Annuity; (f) Ordinary
Annuity; (g) Perpetuity; and (h) Variable Annuity. Also, see Interest Impact on Present Value of Ordinary Annuity of 1 Per
Period. (5) A series of equal money payments made at equal intervals during a designated period of time. In governmental
accounting the most frequent annuities are accumulations of debt service funds for term bonds and payments to retired employees
of private corporations or under a Public Employee Retirement Systems (PERS). (6) (Legal) In law, a sum of money paid yearly
to a person during his or her lifetime. It arises by a contract under which the recipient or another person deposits funds with the
grantor. The grantor then returns a designated portion of the principal and interest in periodic payments upon the arrival of the
beneficiary at a designated age. In general, an annuity is the payment of a flat or fixed sum of money over a specific period of
time.
Annuity Funds — Funds established to account for assets given to an organization subject to an agreement which binds the
organization to pay stipulated amounts periodically to the donor(s).
Annuity in Advance — An annuity in which payments are made at the beginning of each period as contrasted with an Ordinary
Annuity in which payments are made at the end of each period.
Annuity Method — A means of capitalizing future income streams from an investment. The procedure uses compound interest
formulas that treat the income stream as an annuity providing for both a return “on” the investment and a return “of” the
investment.
Annuity Period — The designated length of time during which an amount of annuity is accumulated or paid.
Annuity Unit — A share of participation in a Variable Annuity once income payments have begun.
Annum Period — The designated length of time during which annuity payments are to occur.
Antedate — The assignment of a date that precedes the date on which a particular contract or instrument was actually written or
executed. For example, antedated insurance coverage would be effective before the date the policy was issued.
Anticipatory Hedging — The placement of a Hedge prior to placement of the actual position. Sometimes, this occurs when a firm
knows that it will receive investment funds later that day or week and prefers to hedge numerous potential risks at the earlier date.
Similarly, a commodity producer may prefer to hedge prior to the harvest of a crop, production of an energy product, or
processing a raw material into a deliverable lot.
Antidilution Provision — A contract with shareholders insuring that their relative financial position with respect to ownership of
the corporation (level of assets and earning power) is left unaltered in the event the company increases the number of shares of
stock outstanding.
Antidilutive — A practice of excluding a convertible security in the calculation of Earnings per Share (EPS) when the effect would
be to increase EPS. This is based on the conservatism principle of accounting. In the EPS figure, the numerator interest expense
(net of tax) is added back to net income. The denominator is increased by the number of shares the convertible bond would be
converted into. If the impact of including the convertible bond increased EPS, an antidilutive effect would exist.
Antipirating Agreements — Agreements among employers to act jointly in the hiring of labor and not to compete with each other
for workers.
Antitrust Acts (Laws) — Federal laws designed to improve market efficiency, encourage greater competition, and curtail unfair
trade practices. This is accomplished by reducing barriers to entry into markets, breaking up Monopolies, and preventing
conspiracies to restrict production or raise prices. There are three major antitrust in the United States: (1) the Sherman Antitrust
Act of 1890; (2) the Clayton Antitrust Act of 1914; and (3) the Federal Trade Commission Act of 1914.
Antitrust Laws — State and federal laws enacted to protect individuals and business entities from monopolies and unfair trade
restrictions. For example, local real estate boards cannot require its members to charge a certain brokerage commission rate since
to do so would be in violation of federal antitrust laws.
Any-Part-of Order — In context of general equities, order to buy or sell a quantity of stock in pieces if necessary. Opposite of an
All-or-None Order (AON).
AO or A/O — Refers to “As Of.” This indicates that while a transaction was processed on one date, it was actually conducted on
a different date. Often backlogs or delays in reports or inaccuracies in previous reports trigger this report.
AON (“All-or-None” or “All-or-Nothing”) — Abbreviation used on a buy or sell order to instruct the broker to fill the order
entirely or fill none at all.
AOS — See Automated Order System.
Appeals Board — A means by which a property owner can formally protest a tax bill and seek a change in the Appraised or Assessed
Value of his or her property. Jurisdictions that have such a board normally require the property owner to have first met with the
tax assessor prior to appealing the property tax.
Applied Research — The application to a particular problem of the knowledge gained in basic research.
Appointments — Items such as furniture or equipment found in a building that may increase or decrease the intrinsic value of the

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Business and Economic Research Group Dictionary of Financial Words
property.
Apportionment — A division or allocation of responsibility among two or more persons. In regard to the sale of real estate, the
allocation is typically of a cost or expense such as property taxes between the purchaser and the seller, or, in the case of income
producing property, the allocation of rental income between the purchaser and seller. Normally, the seller is responsible for
expenses up to and including the day of settlement or closing.
Apportionment Clause — A clause normally included in standard insurance policies to prevent financial gain by the insured as a
result of insuring the same property with two or more companies and hoping to collect more than the actual reported loss.
Appraisal — (1) An estimate or opinion of value supported by factual information as of a certain date. (2) The act of appraising;
to make an estimate of value, particularly of the value of property. Note: If the property is valued for purposes of taxation, the
less inclusive term “assess” is substituted for the above term. (3) The estimated value resulting from such action. (4) A written
estimate of the market value of an asset as of a given date. Such estimates are provided by a qualified and licensed appraiser and
reflect a number of factors to include the value of similar assets, improvements, market conditions, replacement costs, income-
producing potential, etc. (5) An estimate of the value of property, made by a qualified professional called an appraiser. Most
states require licenses. Various lenders have their own lists of approved appraisers.
Appraisal and Credit Report Fees — These fees are generally collected by the lender and paid to outside companies performing
the services.
Appraisal Principles — Economic concepts used to explain the rationale and process of market behavior. Appraisal principles
include anticipation, change, competition, substitution, and supply and demand.
Appraisal Process — A systematic step-by-step analysis used by the appraiser to accurately reach an opinion of value. While each
appraisal assignment varies according to the purpose of the appraisal and the approach(es) used, a well-done estimate of value
will follow some standardized procedure.
Appraisal Report — (1) A written report submitted by the Appraiser to support and document the opinion of value rendered by the
appraiser. The form of the appraisal report can be a letter of valuation, a single page standard form or a more elaborate report.
(2) Estimate of real estate value, presumably by an expert. An appraisal evaluates the property at a given time based on facts
regarding the location, improvements, neighborhood, and comparable sales. Generally, the value is based on three approaches:
cost, market, and income.
Appraise — To make an estimate of value, particularly of the value of property. Note: If the property is valued for purposes of
taxation, the less inclusive term “assess” is substituted for the term appraise.
Appraised Value (Valuation) — (1) An expert option of the value of a property at a given time, based on facts regarding the
location, improvements, etc., of the property and surroundings. (2) An estimate of value based on the appraiser’s analysis of data
within the context of the appraisal problem that the appraiser was employed to solve.
Appraiser — An individual who has the experience, training, and legal qualifications to appraise real or personal property.
Appraisers must be state certified or licensed in order to appraise property involving a federally insured or regulated agency.
Appreciate (Appreciation) — (1) An increase in the value of an asset, such as a stock or bond. (2) The increase in value of an asset
due to various factors such as market conditions, replacement costs, income-producing potential, etc. (3) An increase in an asset’s
market value over its value at some previous point in time. The increase can be a result of inflation, increased demand, or some
other related cause. The term denotes the opposite of Depreciate (Depreciation).
Approaches to Value — The various acceptable methods used by appraisers in deriving an estimate of value. There are three
traditional approaches to value: (1) cost approach; (2) sales comparison approach; and (3) income approach.
Appropriation — An authorization granted by a legislative body to incur liabilities for purposes specified in the appropriation act.
Note: An appropriation is usually limited in amount and as to the time when it may be expended.
Appropriation of Retained Earnings — Segregation or restriction of a portion of retained earnings that reduces the amount that
would otherwise be available for dividends. No transfer of funds is necessarily involved, and the aggregate amount of retained
earnings remains unchanged.
Approved Attorney — An attorney authorized by a Title Insurance Company to handle closings and render title opinions.
Appurtenant (Appurtenance) — (1) Anything attached to the land or used with it passing to the new owner. (2) That which belongs
to something else and thus passes with the property. Examples would include riparian rights, easements, barns and other
outbuildings, gardens and orchards.
APR — See Annual Percentage Rate of Interest.
APT — See Arbitrage Pricing Theory.
APT — See Automated Pit Trading.
APV — See Adjusted Present Value.
APY — See Annual Percentage Yield (of Interest).
Arbitrage — (1) A form of trading which attempts to profit by discrepancies in price due to location, funding, volatility,
communications, response to information, or other differences. Typically, the price differences are small and only the quickest,
most cost efficient or funding efficient parties participate. Compare with Risk Arbitrage. (2) Buying something in one market
and selling it in a different market at the same time to make a profit. For example, buying French francs in New York and selling
them in London whenever the price of francs (for purchase) in New York is lower than the price of francs (for sale) in London.
(3) The simultaneous buying and selling of a security at two different prices in two different markets, resulting in profits without
risk. Perfectly efficient markets present no arbitrage opportunities. Perfectly Efficient Markets seldom exist, however. Even so,
arbitrage opportunities are often precluded because of transactions costs and the fact that markets quickly adjust to arbitrage
opportunities. (4) Dealing in differences, for example, buying an asset in a market or on one exchange while simultaneously
selling short (for future delivery) in another market at a higher price. An arbitrage transaction does not involve any risk. Because

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Dictionary of Financial Words GREAT BASIN RESEARCH

contracts are made, the returns derived from the transaction are known from the beginning, even though part of the transaction
may take place in the future. Also see Space Arbitrage and Covered Interest Arbitrage. (5) The purchase of one security and
simultaneous sale of another to give a risk-free profit; a condition existing in imperfect markets where, due to differences in prices
between identical goods or financial instruments within separate markets, profits can be realized by simultaneously buying the
assets low in one market and selling it high in the other market. In well-functioning capital markets, there are no opportunities
for arbitrage as prices throughout all markets tend to equalize very rapidly based on such price differentials.
Arbitrage Bonds — Municipality issued bonds which are issued with the intended purpose to gain an interest rate advantage by
refunding a higher-rate bond before its call date. Lower-rate refunding issue proceeds are then invested in U.S. Treasury
securities until the first call date of the higher-rate issue.
Arbitrage Pricing Theory (APT) — An alternative model to the Capital Asset Pricing Model developed by Stephen Ross and based
purely on arbitrage arguments. The APT implies that there are multiple risk factors that need to be taken into account when
calculating risk-adjusted performance or Alpha.
Arbitrage Trading Program (ATP) — See Program Trading.
Arbitrageur — One who profits from the differences in price, i.e., Arbitrage, when the same, or extremely similar, security,
currency, or commodity is traded on two or more markets. The Arbitrageur profits by simultaneously purchasing and selling
these securities to take advantage of pricing differentials (spreads) created by market conditions. Also see Risk Arbitrage,
Convertible Arbitrage, Index Arbitrage, and International Arbitrage.
Arbitrate (Arbitration) — (1) Letting an impartial third party (the arbitrator) work out the terms of a labor-management contract
or some other corporate or individual dispute. (2) The settlement of disputed questions and issues, whether of law or fact, by
one or more arbitrators by whose decision the parties agree to be bound. (3) The procedure of settling disputes between members,
or between members and customers. (4) A procedure for resolving disputes out of court by an impartial third party chosen by
the disputing parties who agree to abide by the decision of the arbitrator. While disagreements and disputes involving real estate
often result in court action, disputing parties sometimes agree to settlement through arbitration. (5) A process to resolve disputes
for securities and futures markets. It can involve broker/dealers, clients, and employees of broker/dealers. There are different
forums such as the National Association of Securities Dealers (NASD) and New York Stock Exchange (NYSE).
Arc Elasticity — An (average) elasticity measure that refers to a section of a demand (or supply) line (or curve) rather than a single
point.
Arithmetic Growth — (Data Analysis) A rate of increase (or decrease) by a constant amount per time period, for example, a
population increase of X persons per year, year after year. Arithmetic growth mathematically results in a constant reduction in
the percentage growth rate as the denominator (the amount of growth) remains constant while the numerator (the base value) is
continually increasing. Compare to Exponential Growth and Sigmoid Growth.
Arithmetic Mean —(Data Analysis) The sum of a set of observations divided by the number of observations. Also referred to as
simply the Average, Mean, or the Sample Mean. Compare to Mode and Median.
ARM — See Adjustable Rate Mortgage.
Arm’s Length Transaction — (1) An economic or financial transaction as if carried out by unrelated parties; a economic or financial
transaction between completely independent parties both of whom are acting in their own self-interest. (2) A transaction such
as a sale of property or the lending of money in which all parties involved are acting in their own self-interest and are under no
undue influence or pressure from the other parties. Such a situation is the basis for deriving fair market value, and if the
transaction is not at arm’s length then the actual selling price will likely be less than or greater than the market value.
Arms Index — Also known as a TRading INdex (TRIN). The index is usually calculated as the number of advancing issues divided
by the number of declining issues. This, in turn, is divided by the advancing volume divided by the declining volume. If there
is considerably more advancing volume relative to declining volume this will tend to reduce the index (i.e. increase the
denominator). Consequently, a value less than 1.0 is bullish while values greater than 1.0 indicate bearish demand. The index
often is smoothed with a simple Moving Average Process.
Arpen (Arpent) — A French measurement term used to denote an area equal to seven-eighths of one acre. See Acre.
ARPS — See Adjustable-Rate Preferred Stock.
ARPS — See Auction Rate Preferred Stock.
ARR — See Average Rate of Return.
Arrears — (1) Money which is not paid on time, as for example, if a borrower has not made the last two mortgage payments, he or
she is said to be in arrears. In many political jurisdictions, property taxes are paid at the end of the year rather than at the
beginning and are thus referred to as “due in arrears” rather than in advance. (2) A payment made after it is due is in arrears.
Interest is said to be paid in arrears since it is paid to the date of payment rather than in advance.
Arrearage — Overdue payment; frequently, omitted dividends on preferred stocks.
Arterial Street — A major road designed to be a through street and to handle a large volume of traffic.
Articles of Co-Partnership — The formal written agreement among partners setting forth important aspects of the partnership such
as the name, nature, duration, and location of the business, capital contributions of each partner, duties, and profit and loss ratios.
Articles of Incorporation — (1) A document prepared by persons organizing a Corporation in the United States that sets forth the
structure and purposes of the corporation and specifics regarding stock to be issued. (2) Formal documents prepared by
individuals wishing to establish a corporation in the United States. They must file these documents with the proper authorities
in the state in which the corporation wishes to reside, usually the office of the state secretary of state. One copy is returned, after
being reviewed, and, together with the state-provided certificate of incorporation, become the corporation’s charter formally
recognizing the corporation as a business entity entitled to begin business operations. Rules governing the company’s internal
management are set forth in its bylaws. Also see Corporate Charter.

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Business and Economic Research Group Dictionary of Financial Words
Artificial Person — A person created and recognized by law as having legal rights, an example being a corporation. Within a legal
context, such a person should be distinguished from a “natural person.”
“As Is” — (1) A clause that is sometimes used in the transfer of property. It means that the present property is being transferred with
no guarantee or warranty provided by the seller. (2) A phrase included in a contract of sale disclaiming any warranty or guarantee
on the part of the seller. A person purchasing real estate “as is” takes it in exactly the condition in which it is found and must
trust his or her own inspection of the property.
Asian — An Option which uses the averaged prices of the underlying security, index, or commodity, during its life as the determinant
of the payoff amount.
Ask — The price requested, at the minimum, for an order to be acceptable and executed for the seller.
Ask Price — The price at which a trader giving a quote is willing to sell a given item. Also referred to as Asked Price or Offer Price.
Asked Price — The price asked for a security offered for sale. Quoted, bid, and asked prices are wholesale prices for inter-dealer
trading and do not necessarily represent prices available to the general public.
Asking Price — The listed price of the property. Often such a price denotes a willingness on the part of the owner to sell the
property for a lower price.
Assemblage — The combining of two or more adjoining lots into a single larger lot. Often the purpose of bringing a number of lots
together under one ownership is to allow a developer or investor to construct a large building or buildings on a single lot. By
assembling the lots, the single value of the one large lot is often greater than the total single values of each of the smaller lots.
See Assemblage Value.
Assemblage Value — Term used to describe the perceived enhanced value placed on real property based on its higher and more
valuable use in conjunction with other property or as part of a larger assembled parcel, as when a piece of property becomes a
key component part to a project which would significantly increase the overall value of the combined unit in relationship to the
values of the separate individual parcels. Assemblage values are typically subjective measures of land valuations and are
considerably higher than Appraised or Assessed Valuations and are most often based on the owner’s perception of the property’s
potential worth based on a more fully developed state, not that of the prospective buyer or property developer.
Assess — To value property officially for the purpose of taxation. Note. The term is also sometimes used to denote the levy of taxes,
but such usage is not correct because it fails to distinguish between the valuation process and the tax levy process. Compare to
Appraise.
Assessed Value (Valuation) — (1) Value placed on real estate by governmental assessors as a basis for levying property taxes; not
identical with Appraised or Market Value. (2) The taxable basis of a property imposed by the municipality in which it is located.
Often it is at a specific fraction of the Market or Appraised Value. Equally as important is the rate of taxation on that assessed
value. Assessed values may differ substantially from market values and appraised values. (3) The worth or value of a piece of
property as determined by the taxing authority for the purpose of levying an Ad Valorem (Property) Tax. The assessed value
of property is normally based on some percentage of market value. Property may be assessed at full market value or, as is more
commonly the case, assessed at something less. (3) An appraisal of real and personal property for determination of ad valorem
taxes. Such measures are frequently used to establish the debt limits for municipal governments. Local property taxes are based
on this measure by typically assessing taxes on the assessed valuation, which is computed as a percentage of the fair market value.
Assessment — (1) The process of making the official valuation of property for purposes of taxation. (2) The valuation placed upon
property as a result of this process. (3) A determination of the value of a parcel for the purpose of levying a property tax on that
parcel. (4) The term also is used to denote the means by which local governments raise money to pay for certain improvements
which directly benefit property owners adjoining or adjacent to the improvements. For example, the cost of paving a previously
unpaved road could be assessed to the land on each side of the road. The actual cost to a particular landowner would be based
on his or her front footage as a percentage of the total footage being improved. (5) Joint forms of ownership such as
condominiums and cooperatives allocate the expenses incurred for the maintenance and upkeep of the common areas and assess
each unit owner for his or her proportionate share. (6) A local tax levied against a property for a specific purpose, such as a sewer
or street lights.
Assessment Base — The total assessed value of all property in a given assessment district.
Assessment Ratio — The ratio of the Assessed Value of property to its full or fair Market Value or Appraised Value as set by a taxing
authority.
Assessment Roll or Ledger — (1) A list of all taxable property showing the Assessed Value of each parcel. Such information is
public and is normally available in the tax assessor’s office or in the local land records. (2) In the case of property subject to ad
valorem taxes the official list containing the legal description of each parcel of property, its assessed valuation, and name and
address of owner. Additionally, in the case of property in a Special Assessment District (SAD), identification of the district, total
amount of assessment, amount and due date of each installment, interest charges on each installment, and record of collection
of all charges may also be included.
Assessor — A public official either appointed or elected to appraise property and place an Assessed Value on that property for the
purpose of levying a property (Ad Valorem) tax.
Asset — (1) All those things that are owned, including money, land, buildings, debts others owe you, and everything else that is
owned. (2) On a balance sheet, that which is owned or receivable. (3) Something of value to the holder. In financial terms, an
asset of one person or entity, say an investment security, may be a liability to another, i.e., a debt obligation. For example, for
a commercial bank, a savings account or certificate of deposit (CD) represents an asset to a household but is carried as a liability
to the bank, i.e., something that is owed to the bank’s depositors.
Asset Allocation — (1) Part of an investment strategy for determining an investor’s share of stocks (equities), bonds, and cash. It
is generally believed that asset allocation plays an important role in a individual’s and Mutual Fund’s performance, particularly

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Dictionary of Financial Words GREAT BASIN RESEARCH

in the short-term. (2) The division of an investment portfolio among major asset categories, such as bonds, common stocks, or
cash, usually to balance risk and reward appropriate for an investor’s age, financial position, retirement objectives, etc. (3) The
division of investment funds among categories of assets, such as cash equivalents, stock, fixed-income investments, and such
tangible assets as real estate, precious metals, collectibles, etc. Asset allocation affects both risk and return and is a central
concept in personal financial planning and investment strategy and management. Funds managers often use asset allocation to
achieve portfolio diversification, which spreads risk over several asset categories. The following table provides an example of
asset allocations and historical rates of returns based upon risk strategy. As can be seen from this table of actual returns, the
higher the allocation of assets into stocks and out of cash and bonds, the greater the overall returns. However, this strategy leads
to greater volatility on the downside as well.

Percent Allocation Average Best/Worst

Stocks/Bonds/Cash Annual Best/Worst Annualized
Investment Strategy (percent) Return Year’s Return Return
Most Conservative 25 / 40 / 35 7.9% 20.8% / -2.1% 10.7% / 5.2%
Moderately Conservative 40 / 40 / 20 8.8% 22.5% / –7.5% 12.2% / 5.7%
Moderate 60 / 30 / 10 9.8% 27.6% / –14.1% 13.8% / 6.1%
Moderately Aggressive 80 / 20 / 0 10.8% 33.2% / –20.5% 15.4% / 6.4%
Most Aggressive 100 / 0 / 0 11.6% 43.4% / –26.5% 16.7% / 6.5%
Note: Results are for 1956 through 1997. Assumes dividend reinvestment and annual re-balancing. The “Best/Worst” annualized returns
apply to any 20-year period.
Sources: T. Rowe Price Associates; BusinessWeek.

Asset Allocation Mutual Fund — A Mutual Fund that rotates among stocks, bonds, and money market securities to maximize return
on investment and minimize risk.
Asset-Backed Securitiy — (1) A security backed by notes or receivables against assets other than real estate. Some examples are
autos, credit cards, and royalties. A security that is collateralized by loans, leases, receivables, or installment contracts on personal
property, not real estate. (2) Bond or debt instruments which are collateralized by the cash flow from a pool of interest-earning
assets. The bonds so created give the holder an unrestricted claim to ownership to the underlying assets making up the pool.
Typically the pool consists of automobile loans, consumer loans, credit card receivables, vehicle and equipment leases, and other
similar debt obligations.
Asset-Based Financing — Methods of financing in which lenders and equity investors look principally to the cash flow from a
particular asset or set of assets for a return on, and the return of, their financing.
Asset-Based Lending — Financial obligations secured by a firm’s assets, such as inventory, receivables, or other forms of collateral
excepting real estate. Also referred to as Asset-Based Financing.
Asset-Liability (Management) Committee (ALCO) — A senior management committee tasked with the coordination of a financial
institution’s lending and borrowing decisions. The committee functions to reduce the institution’s exposure to changes in market
interest rates (interest rate risk) by better matching the volume and maturity structure of its interest-earning assets and its interest-
bearing liabilities. This is accomplished by measuring the interest sensitivity “gap,” or difference between the cumulative and/or
unique volume of interest-earning assets and interest-bearing liabilities at specified maturity intervals, i.e., 30 days, 60 days, 90
days, 180 days, less than one year, two years, over two years, etc. By matching these maturity “buckets” or time periods for both
assets and liabilities, in theory changes to net interest income will be minimized.
Asset-Liability Management — (1) The process for financial institutions and corporations to adjust their funding and usage of funds.
Some approaches are the Bucket, GAP, Hedging, Matched Book, Matched Funding, Financial Swaps, and Structured Products.
With the lowering of various insurance, investment and commercial banking barriers, the definition is now more inclusive.
Previously, it tended to be reserved for non-investment banking and brokerage operations. Broker/dealer institutions tended to
describe their hedging activities as Risk Management. (2) The active management of a financial institution’s balance sheet in
order to minimize adverse changes in net interest income, i.e., the difference between interest income and interest expense, caused
by Interest Rate Risk. Neutral asset-liability management would attempt to match the volume and maturities of rate-sensitive
assets and liabilities (the “gap”); active asset-liability management would attempt to increase rate-sensitive assets relative to rate-
sensitive liabilities (referred to as a positive gap) in a rising interest rate environment and decrease rate-sensitive assets relative
to rate-sensitive liabilities (negative gap) in a falling interest rate environment. The overall result of these actions would be to
re-price more assets at higher rates when rates are rising and, when rates are falling, be able to re-price relatively more liabilities
than assets at lower rates. The internal organization for undertaking such responsibilities is typically the Asset-liability
(Management) Committee, or ALCO. Compare to Asset Management and Liability Management. Also see Gap and Gap
Management.
Asset Management — A bank management orientation, typically followed prior to the 1970's and the relaxation of interest rate
ceilings, which directed management attention to the uses of funds, particularly asset quality issues. Under asset management,
sources of funds were generally considered as fixed due to lack of competition allowed among financial intermediaries under
a system of interest rate ceilings on deposits accounts. By the 1970's, with the introduction of new short-term variable rate funds
sources (e.g., fed funds, repurchased agreements, large negotiable CD’s, commercial paper) this management orientation gave
way, for many aggressive and money-center banks, to liability management techniques which game emphasis on attracting new

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Business and Economic Research Group Dictionary of Financial Words
sources of funding. Compare to Liability Management and Asset-Liability Management.
Asset Management Account (AMA) — An account at a financial institution or brokerage firm that includes a variety of banking
services, for example, transaction account, credit card, over-draft protection, and brokerage services. Generally such accounts
provide the owner with one consolidated monthly statement of transactions.
Asset Markets — See Capital Markets.
Asset Quality — An assessment of a financial institution’s assets in terns of both credit risk, i.e., the likelihood of repayment of both
principal and interest, and liquidity, i.e., an asset’s marketability.
Asset Sale — The nonrecourse sale of a financial institution’s receivables to a third party either through the sale of individual loans,
a pool of loans, or securitization, or the issuance of securities collateralized by the underlying receivables. For an asset sale to
take place for accounting purposes, the sale must be under conditions of nonrecourse to the seller, that is, the buyer assumes
complete control over the assets being transferred without any residual obligation (recourse) or interest on the part of the seller,
for example, an obligation that the seller buy back bad loans.
Asset Stripper — A Corporate Raider that takes over a target company in order to sell large blocks of assets of the acquired
company to repay debt outstanding debt used in the acquisition. The raider calculates that the net selling of the assets and paying
off the debt will still leave it with assets that are worth more than what it paid for the company.
Asset Swap — See Currency Swaps and Interest-Rate Swaps.
Asset Turnover — See Asset Turnover Ratio.
Asset Turnover Ratio — (1) A gauge of how effectively a company’s assets are being used to generate sales. Calculated by dividing
gross revenues by total assets. The object is achieving the greatest level of sales with the least fixed assets. (2) A ratio revealing
the efficiency of corporate assets in generating revenue. A higher ratio is desired. What is considered a high ratio differs from
industry to industry and therefore comparable industry-specific ratios should be used. Asset turnover ratios can also be calculated
for specific classes of assets, such as the ratios of sales to cash and sales to inventory. Also see Financial Ratios.
Assets — (1) Those economic resources of an entity that can usefully be expressed in monetary terms; examples include cash,
accounts receivable, inventories, and plant and equipment. (2) An accounting term used to denote the real and personal property
one possesses, as distinguished from debts and obligations which are known as liabilities. (3) Refer to properties owned or are
due to a person or organization. Assets are typically viewed in three categories or classifications: (a) Current; (b) Fixed or Long-
Term; and (c) Intangible. Assets minus liabilities equals net worth. Also see Asset.
Assign — (1) To transfer interest to another. (2) To make an option seller perform his obligation to assume a short futures position
(as a seller of a Call Option) or a long futures position (as a seller of a Put Option).
Assignee — (1) The person to whom a claim, benefit, or right in property is made. (2) One who receives an assignment or transfer
of rights. An assignment of a contract transfers the right to buy property.
Assignment — (1) A relatively inexpensive way of liquidating a failing firm that does not involve going through the courts. (2)
Transferring the title, rights, ownership, or other interests in an asset to another person. The transfer of a right; most generally
used in connection with personal property used in connection with personal property rights, as rights under a contract, a
negotiable instrument, an insurance policy, a mortgage, a chattel or lease. (3) The action for the seller of the Option of acquiring
the opposite position when an option is exercised. When a Put is exercised, the writer receives a long position in securities or
a long futures contract. When a Call is exercised, the writer receives a short position in the securities or a short futures contract.
(4) Transfer of a contract from one party to another. (5) The transfer of a claim, benefit or right in property belonging to one
person (the assignor) to another person (the assignee). Real estate instruments in which assignments occur include sales contracts,
mortgages, options, and leases. Rights under contracts are valuable property rights which can ordinarily be assigned to third
persons. The legal effect of an assignment is to substitute the assignee for the assignor in the contractual relationship with the
other original contracting party.
Assignment of Lease — A transfer by the tenant (lessee) of his or her interest in the lease to a third person. Both the Lessor and
Lessee may transfer their respective interests in a lease to a third person, unless prohibited by the terms of the lease.
Assignor — The one who assigns to another person.
Associate Broker — A person who has met the qualifications necessary for a real estate broker’s license but who works jointly with
and is employed by another broker.
Associate Membership — A Chicago Board of Trade (COBT) membership that allows an individual to trade financial instrument
futures and other designated markets.
Associated General Contractors of America (AGCA) — The AGCA serves as a leading spokesman for the construction industry.
Four classifications of construction contractors are represented: (1) buildings, (2) heavy industrial, (3) municipal utility
construction, and (4) highways. The association’s address is 1957 E Street, N.W., Washington, D.C. 20006.
Associated Person (AP) — An individual who solicits orders, customers, or customer funds (or who supervises persons performing
such duties) on behalf of a futures commission merchant, an introducing broker, a commodity trading adviser, or a commodity
pool operator.
Assumable Mortgage — (1) A mortgage loan which can be assumed by a new buyer. Generally, the new owner must pass a credit
approval process. (2) A mortgage obligation which gives the borrower the right to assign the remaining balance and repayment
obligations to another person without any penalties by the lender. The buyer assumes all obligations of the seller at the same
rate and terms as the original loan agreement, while the seller remains secondarily liable for repayment. Department of Veterans
Affairs (VA) mortgages and Federal Housing Administration (FHA) insured mortgages are typically assumable. To preclude
being assumed, many lenders write mortgage contracts with a Due-on-Sale Clause.
Assumption — (1) The right to convey a mortgage or deed of trust to another party at the same rate and terms. (2) When the new
owner assumes the responsibility for repaying an existing mortgage. (3) The agreement between buyer and seller where the buyer

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Dictionary of Financial Words GREAT BASIN RESEARCH

takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this
is an existing mortgage debt, unlike a new mortgage where closing cost and new, possibly higher, market-rate interest charges
will apply. Both Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) loans are fully assumable.
Some Adjustable Rate Mortgages (ARM) may be partially assumable, but the new owners may be required to re-qualify for the
loan.
Assumption Fee — A charge levied by a lender to a purchaser who takes title to property by assuming an existing mortgage. The
charge can be a fixed amount; for example, $100, or perhaps a percentage of the outstanding balance, for example, one percent.
The assumption fee is paid to the lender at the time of settlement or closing.
Assumption of Mortgage — (1) A provision which allows a new buyer of a property to assume or use an existing mortgage provided
such buyer is approved by the lender. (2) An obligation undertaken by the purchaser of property to be personally liable for
payment of an existing mortgage. In an assumption, the purchaser is substituted for the original mortgagor in the mortgage
instrument and the original mortgagor is to be released from further liability in the assumption, the mortgagee’s consent is usually
required. The original mortgagor should always obtain a written release from further liability if he desires to be fully released
under the assumption. Failure to obtain such a release renders the original mortgagor liable if the person assuming the mortgage
fails to make the monthly payments. An “assumption of mortgage” is often confused with “purchasing subject to a mortgage.”
When one purchases subject to a mortgage, the purchaser agrees to make the monthly mortgage payments on an existing
mortgage, but the original mortgagor remains personally liable if the purchaser fails to make the monthly payments. Since the
original mortgagor remains liable in the event of default, the mortgagee’s consent is not required to a sale subject to a mortgage.
Both “assumption of mortgage” and “purchasing subject to a mortgage” are used to finance the sale of property. They may also
be used when a mortgagor is in financial difficulty and desires to sell the property to avoid foreclosure. (3) Taking title to
property which has an existing mortgage and agreeing to be personally liable for the payment of the existing mortgage debt. A
distinction exists between “assuming” a mortgage and taking title ‘subject to’ a mortgage. If the purchaser agrees to assume the
mortgage, he or she becomes personally liable on any deficiencies, such as not making payments, resulting in a foreclosure sale.
When a purchaser takes title subject to the mortgage, no personal liability is undertaken to the lender; thus, the purchaser could
walk away from the mortgage and lose nothing but the equity already invested. In both situations the original borrower is liable
to the lender unless specifically released in a novation. A mortgage may obtain a non-assumption clause or due on sale clause
which prohibits an assumption without consent of the lender. Such consent is normally given for a fee and a possible jump in
the interest rate if the contract rate is below the prevailing market rate.
Asymptote — (Data Analysis) (1) A straight line always approaching but never meeting a curve; tangent to a curve at infinity. (2)
Used to denote a curved line, typically representing exponential growth or decay, which approaches a line (value) as a limit. See
Asymptotically.
Asymptotically — (Data Analysis) Approaching a value as a limit, i.e., attaining it at infinity; a curve representing exponential
growth or decay which approaches, but never attains, a limiting value.
At a Discount — Refers to a security selling below its par or face value.
At a Premium — Refers to a security selling above its par or face value.
At Par — Refers to a security selling at its par or face value.
At-Risk Rule — (1) A part of the Tax Reform Act of 1986 which limits the amount that an investor can claim as a loss suffered from
a real estate investment. (2) A tax term used to denote that a taxpayer can only deduct losses for tax purposes to the degree of
risk. Specifically, at-risk amounts are restricted to the actual cash investment and the debt for which the taxpayer is personally
liable. Therefore, for an investment of $30,000 which has become a loss of $50,000, only the $30,000 may be deducted as a loss.
At-the-Market — When you buy or sell a security “at-the-market,” the broker will execute your trade at the next available price.
At-the-Money Option (ATM) — (1) An Option with a Strike Price that is equal, or approximately equal, to the current market price
of the underlying Futures Contract. (2) An option which has an exercise or strike price that is the same as the underlying
instrument at current market valuations
At-the-Opening Order — An order that is to be executed at the opening of the market or else canceled.
ATM — Automated Teller Machine. It also refers to an At-the-Money Option.
Atomistic Competition — The type of competition among buyers or among sellers in perfectly competitive markets in which each
individual is too insignificant (like an atom in a large universe) to affect the equilibrium or market price. Also see Monopoly,
Oligopoly, Monopolistic Competition, Perfect Competition, and Monopsony.
Attached Housing — Two or more units that are physically attached but intended and designed for occupancy as individual housing
units. Such units may be in the form of a duplex, triplex, or fourplex as well as row houses which may extend for a complete
city block. In contrast, most residential units are in the form of detached units.
Attachment — (1) Seizure of property through court process to repay a debt. (2) The seizure of property of, or a debt owed to, the
debtor by the service or process upon a third person who is in possession of the property or who owes a debt to the debtor. (3)
The act of taking a person’s property into the legal custody of a court for the purpose of serving as security for satisfaction of
a judgment which has been filed. The action itself is often called a Writ of Attachment and serves to create a lien against the
property. As a result the property may not be sold free of the attachment unless the attachment has either been satisfied or
released.
Attestation — The act of witnessing a person’s signing of a written instrument. Some states require that a deed be witnessed by at
least two witnesses one of whom may need to be an official witness such as a notary. Without the attestation the deed is void
in those states that have this requirement. Some deeds may require a witnessing in cases involving grantors who have not learned
to write or are paralyzed. Such a grantor would be required to make a mark or at least a thumb print which manifests intent to
sign. Both the marking and the statement or declaration of intent by the grantor would need to be witnessed.

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Business and Economic Research Group Dictionary of Financial Words
Attorney at Law — A person authorized to practice law in his or her respective state and thus permitted to give legal advice, draft
legal instruments, and represent clients in courts of law.
Attorney in Fact — (1) A type of agency relationship where one person holds a power of attorney allowing him to execute legal
documents on behalf of another. Decisions made by the attorney in fact are binding on the principal. (2) A person authorized
to act on behalf of another by virtue of a Power of Attorney. Anyone of legal capacity may be an attorney in fact, and depending
on the desire of the person creating the relationship, the attorney in fact’s authority could be that of a universal, general, or
specific agent.
Attorney’s Opinion of Title — A statement issued by an attorney as to the quality of title after examining an abstract of title.
Commonly referred to as “opinion of title.”
Attractive Nuisance — A potentially hazardous object, such as a swimming pool, or a condition such as an open pit on a parcel of
land, that is inviting and potentially dangerous to young children or the public.
Attribute Sampling — (Statistical Analysis) A statistical procedure used to study the characteristics of a population. Attribute is
a qualitative characteristic that a nuit of a population, i.e., the sample, either possesses or does not possess. For example, an
account receivable is either past due or not; proper authorization for a payment either exists or it does not. Thus the population
under consideration is composed of two mutually exclusive classes: units possessing the attribute and units not possessing it.
The statistical procedure used to estimate the occurrence of a particular attribute in a population is referred to as attribute
sampling. This technique can be used by the auditor, investigator, or researcher to substantiate such accounting populations as
cash receipts, cash payments, payrolls, sales, and entries posted to the wrong account. In this analysis, the auditor usually
determines the expected occurrence rate and the upper precision limit. The occurrence rate equals the percentage of the
population having the attribute. Precision is the magnitude of deviation of a sample value from the population parameter being
estimated.
Auction — The selling of real or personal property to the highest bidder by a person licensed and authorized to sell the property.
The Auctioneer is employed by the owner or seller of the property as an agent and normally receives a percentage of the sales
price as his or her commission.
Auction Market — Dealings on a securities exchange where a two-way auction is continuously in effect.
Auctioneer — A person licensed or authorized to sell real or personal property belonging to someone else at public auction. In some
states an auctioneer selling real property must be licensed as a real estate broker, whereas in others he or she is licensed as an
auctioneer.
Audit — (1) An examination and verification of the financial records of a corporation by a qualified accountant. (2) The examination
of documents, records, reports, systems of internal control, accounting and financial procedures, and other evidence for one or
more of the following purposes: (a) to ascertain whether the statements prepared from the accounts present fairly the financial
position and the results of financial operations of the constituent funds and account groups of the governmental unit in accordance
with generally accepted accounting principles and on a basis consistent with that of the preceding year; (b) to determine the
compliance with applicable laws and regulations of a governmental unit’s financial transactions; (c) to review the efficiency and
economy with which operations were carried out; (d) to review effectiveness in achieving program results. Audits are required
by the Securities and Exchange Commission (SEC) for all companies with registered securities.
Audit Committee — a group of individuals, selected by the governing body, having specific responsibility for addressing all issues
related to the company’s external financial audit. Ideally, audit committees form a direct communications link between the
auditor and the governing body; therefore, the majority of the committee’s members normally would be expected not to have
management responsibilities within the entity under audit.
Audit Finding — In the context of a financial audit, a weakness in internal controls or an instance of noncompliance with applicable
laws and regulations that is presented in the audit report in conformity with Generally Accepted Accounting Standards (GAAS).
A typical audit finding is composed of a statement of the condition (i.e., weakness or instance of noncompliance) and the criterion
or criteria used to define it, an explanation of the cause of the condition, a discussion of its results and recommendations for
improvement. Findings ordinarily are presented together with a response from management, which states management’s
concurrence or nonconcurrence with each finding and its plan for corrective action.
Audit Resolution — The process whereby corrective action is planned, implemented, and monitored to remedy weaknesses
discovered and reported in conjunction with an Audit
Audit Scope — In the context of a financial audit, the focus of audit testing as well as the reference point used by auditors when
evaluating the results of audit tests or otherwise exercising their professional judgment. The minimum acceptable audit scope
for governments would result in an opinion on the combined (i.e., general purpose) financial statements, with each fund type and
account group considered separately when applying materiality evaluations.
Auditor’s Opinion — A statement signed by an auditor in which he states that he has examined the financial statements in
accordance with Generally Accepted Auditing Standards (with exceptions, if any) and in which he expresses his opinion on the
financial condition and results of operations of some or all of the constituent funds and balanced account groups of the
organization, as appropriate.
Auditor’s Report — In the context of a financial audit, a statement by the auditor describing the scope of the audit and the auditing
standards applied in the examination, and setting forth the auditor’s opinion on the fairness of presentation of the financial
information in conformity with Generally Accepted Accounting Principles (GAAP) or some other comprehensive basis of
accounting.
Authority — (1) The power of an agent to affect the principal in legal relations with third persons for lawful purposes. Authority
may be classified into: (a) actual authority, (b) implied authority, (c) apparent or ostensible authority, (d) inherent authority, and
(e) other authority which may be implied from particular circumstances. Generally, the authority of an agent is strictly construed

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Dictionary of Financial Words GREAT BASIN RESEARCH

by the courts. (2) A governmental unit or public agency created to perform a single function or a restricted group of related
activities. Usually such units are financed from service charges, fees, and tolls, but in some instances they also have taxing
powers. An authority may be completely independent of other governmental units, or in some cases it may be partially dependent
upon other governments for its creations, its financing, or the exercise of certain powers.
Authority Bonds — Bonds payable from the revenues of a specific authority. Since such authorities usually have no revenue other
than charges for services, their bonds are ordinarily Revenue Bonds.
Authorization to Sell — A listing agreement entered into by the owner of property and a broker determining the rights and
responsibilities of both parties in the selling of the property.
Authorized Shares (Stock) — (1) The maximum number of shares of stock authorized to be sold according to the by-laws or articles
of incorporation of a company. (2) The number of shares that a corporation may issue. They represent the maximum shares that
can be outstanding. See Issued Shares and Treasury Stock for related terms. (3) Every corporation is permitted to issue shares
of its stock up to the number authorized in the corporation’s charter. The number of authorized shares can be changed only by
a vote of the company’s shareholders.
Authorized Stock — The total number of shares of stock authorized for issue by a company’s shareholders. Also referred to as
Authorized Shares.
Autocorrelation — (Statistical Analysis and Forecasting) A term used in the statistical measurement and analysis of relationships
with a series. It is one of the assumptions required in Regression Analysis in order to make the process reliable. Autocorrelation
deals with the error terms for each observation in regression analysis are independent of each other. That is, the deviation of any
one observation about the regression line (line of “best fit”) is unrelated to the deviation of any other observation. When
autocorrelation exists, i.e., the error terms are correlated, it implies that the regression is under-specified and some other
explanatory variable is evident. The problem of autocorrelation is usually detected by the use of the Durban-Watson Statistic.
Also referred to as Serial Correlation.
Automated Bond System (ABS) — The computerized system that records bids and offers for inactively traded bonds until theyare
cancelled or executed on the New York Stock Exchange (NYSE).
Automated Clearing House (ACH) — A computer-based clearing and settlement operation, often operated by a Federal Reserve
Bank, established for the exchange of electronic transactions among participating depository institutions. A collection of 32
regional electronic interbank networks used to process transactions electronically with a guaranteed one-day bank collection float.
Such electronic transactions can be substituted for paper checks used to make recurring payments such as payroll or preauthorized
insurance premiums. The U.S. Treasury uses the ACH extensively to pay certain obligations of the federal government.
Automated Customer Account Transfer (ACAT) — For transfers of securities from a non-equity trading account to your equity
trading account with your broker.
Automated Order System (AOS) — Investment banks computerized order entry system that sends single order entries to the
Designated Order Turnaround System, or DOT (Odd-Lot), or to investment banks or to floor brokers on the exchange. Also see
Round Lot and Good ‘Til Canceled (GTC) Orders.
Automated Pit Trading (APT) — Introduced in 1989, APT is the London International Financial Futures Exchange (LIFFE)
screen-based trading system that replicates the open outcry method of trading on screen. APT is used to extend the trading day
for the major futures contracts as well as to provide a daytime trading environment for non-floor trading products.
Automated Teller Machine (ATM) — (1) A computer-like terminal activated by a magnetically encoded card which allows
customers of financial institutions to conduct certain banking transactions using their accounts. Most typically, such transactions
include withdrawals and deposits, bill paying, transfer of funds, and account inquiry. Nationwide interconnection of such
terminals allows customers of one institution to conduct certain transactions on their accounts at another institution. Making
deposits at an out-of-state ATM is precluded from such national interconnections, however. (2) Computer-controlled terminals
located on the premises of financial institutions or elsewhere, through which customers may make deposits, withdrawals, or other
transactions as they would through a bank teller. Other terms sometimes used to describe such terminals are customer-bank
communications terminal (CBCT) and remote service unit (RSU). Groups of banks sometimes share ATM networks located
throughout a region of the country that may include portions of several states.
Automated Transfer of Funds — An arrangement which allows the transfer of funds between a customer’s account under
prearranged conditions of the amount of transfer and the timing. Typically such arrangements will include transfers from non-
interest bearing accounts to interest-bearing accounts to take advantage of higher offered interest rates.
Automatic Dividend Reinvestment (ADR) — An arrangement whereby stockholders automatically reinvest their dividends back
into the stock of the paying corporation.
Automatic Exercise — Occurs after an Option expires. Each exchange and its clearing house has rules which govern this exercise.
There are minimum In-the-Money requirements. A holder of an option must inform the clearing house not to automatically
exercise an option. These instructions not to exercise may be due to relatively high transaction costs, increases in position limits,
or unacceptable alterations in position profiles. Also, after hours trading indications may suggest dramatically different prices
than those used to determine the automatic exercise in-the-money amounts.
Automatic Stabilizers — (1) Built-in features of the economic system which tend to stabilize total spending and the overall level
of economic activity. (2) Institutional structures in the economy which have the effect of dampening business cycle fluctuations.
For example, the progressive income tax which automatically tends to pull more money out of the income stream as total incomes
and spending increases, and unemployment payments which automatically push more money into the income stream when the
economy slows down (and unemployment rises).
Automatic Transfer (of Savings) (ATS) — An arrangement which, at certain specified times, automatically transfers funds from
a customer’s savings or other interest-bearing account to a non-interest or lower-interest bearing transactions account for the

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Business and Economic Research Group Dictionary of Financial Words
payment of outstanding drafts.
Automatic Transfer Service (ATS) Accounts — Transactions balances at commercial banks that combine the features of saving
and time deposits. These balances earn interest up to the point when a check is written on them. Then funds are automatically
transferred to the checking account – hence the name automatic transfer service accounts.
Autonomous — (1) (Economics) Independent of national income. (2) (Forecasting) Determined independently or outside of the
system which is being analyzed, as autonomous explanatory variables.
Autonomous Accounts — In the Balance of Payments, those accounts that for analytical purposes can be considered motivated
purely by economic considerations rather than by the need to finance international transactions.
Autoquote — Autoquote indicative prices are generated for many of the financial options contracts traded at the London
International Financial Futures and Options Exchange (LIFFE) using standard mathematical models as derived by
Black and Scholes and Cox, Ross, Rubinstein. Autoquote calculates prices for all series by processing variables captured in
real-time from other systems and trading members each time the underlying price changes. Autoquotes indicate where a series
may trade, given the current level of the underlying instrument.
Autoregressive — (Data Analysis and Forecasting) Using past data or variables of interest to predict future values of the same
variable.
Available Balance — Also referred to as available funds, the amount in a customer’s account which can be used to cover outstanding
checks or transfer funds to another account.
Available for Sale — Assets of a company or financial institution which may be readily sold to meet cash needs. Such assets would
typically not be pledged as collateral or otherwise encumbered.
Average (Mean) — (Data Analysis) For a series of recorded observations, the average represents the mathematical sum of the value
of each observation divided by the total number of observations, or:

Average = Σ(Value of Each Observation)/(Number of Observations)

For example, the average of one measurement of each of 5 grams, 7 grams, and 3 grams is equal to:

Average = [(5) + (7) + (3)]/3 = 5 grams.

The average is also referred to as the Mean value of a sample. Under conditions of a Normal Distribution, the Mean (average),
the Mode (most frequently occurring observation value), and the Median (the middlemost observation value) are by definition
equivalent.
Average (Stock) — An arithmetic mean rate of return on selected stocks intended to represent the behavior of the market or some
component of it. One good example is the widely quoted Dow Jones Industrial Average, which adds the current prices of the
30 DJIA stocks, and divides the results by a predetermined number, the divisor.
Average Age of Receivables — Trade accounts receivable divided by year’s sales multiplied by 365 (days).
Average Annual Return — A way of measuring an individual security’s or index’s return for a single year, based on actual returns
over a number of years. Average annual return illustrates annually compounded returns that would have produced cumulative
total returns if the security’s performance had been constant over the entire period.
Average Cost (or Revenue) (AC or AR) — The total cost (or revenue), divided by the number of units of output which are produced
(and sold).
Average Cost of Capital — A firm’s required payout to bondholders and stockholders expressed as a percentage of capital
contributed to the firm. The average cost of capital is computed by dividing the total required cost of capital by the total amount
of contributed capital.
Average Fixed Cost (AFC) — Total fixed cost divided by total product, or the difference between average total cost and the average
variable costs.
Average Life — The average number of years that each dollar of unpaid principal due on a mortgage loan remains outstanding.
Average life is computed as the weighted-average time to the receipt of all future cash flows, using as the weights the dollar
amounts of the principal paydowns. Also referred to as the Weighted-Average Life (WAL).
Average Maturity — The average time to maturity of securities held by a mutual fund. Changes in interest rates have greater impact
on funds with longer average maturity.
Average (Physical) Product (APP) — The ratio of total product to the total quantity of an input used to produce the product.
Average Propensity to Consume (APC) — (1) The ratio of the level of Personal Consumption Expenditures (PCE) to the level of
Personal Income (PI). (2) That fraction (or percentage) of Disposable (After Tax) Personal Income (Dpi) which is spent for
consumer goods.
Average Propensity to Save (APS) — (1) The ratio of the level of saving to the level of national income (APS = 1 – APC), or one
minus the Average Propensity to Consume (APC). (2) That fraction (or percentage) of disposable (after tax) personal income
which is not spent for consumer goods, or paid as taxes, or spent for imported goods.
Average Rate of Return (ARR) — (1) The ratio of the average cash inflow to the amount invested. (2) A method of capital outlay
analysis that focuses on the ratio of expected average annual net income to the related average investment. (3) A technique used
to estimate a rate of return. To compute this rate, investment outflows are subtracted from total investment inflows. The result
is divided by the number of years the investment was held, and that result is divided by the total investment to arrive at the
average annual rate of return.

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Dictionary of Financial Words GREAT BASIN RESEARCH

Average Revenue (AR) — Total revenue divided by total product; equals product price.
Average Total Cost (ATC) — Total cost divided by total product (quantity produced).
Average Value Product (AVP) — The Average Physical Product (APP) multiplied by product price.
Average Variable Cost (AVC) — Total variable cost divided by total product (quantity produced).
Averages — Various ways of measuring the trend of stocks listed on exchanges. Formulas, some very intricate, have been devised
to compensate for stock splits and stock dividends and thus give continuity to the average. In the case of the Dow Jones
Industrial Average, the prices of the thirty stocks are totaled and then divided by a figure that is intended to compensate for past
stock splits and stock dividends and that is changed from time to time.
Averch-Johnson Effect — Production of a given output at higher-than-minimum cost by a regulated firm as a result of wasteful
investment whenever the guaranteed return on investment exceeds the cost of capital.
Avoidable Costs — Costs that may be avoided by following some course of action.
Avulsion — A sudden loss or gain of land as the result of action of water or a shift in a bed of a river which has been used as a
boundary by property owners. If land is lost as a result of avulsion the riparian owner does not lose title to the land that has been
lost; the boundary lines remain the same. This is not true when land is lost by erosion.
Axial Theory of Growth — A pattern of land growth and development which takes the form of a star and occurs along the main
transportation routes outward from a city. The city or central business district remains the center of the “star.”

©2001-2002 Great Basin Research

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