A priori probability is a method to determine the likelihood an asset's price will behave a certain way based on odds, not history. A priori is Latin for "deductive" or "presumptive." An a ...

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A shares are a type of mutual fund share. They are distinguished from B Shares and C Shares by their load (fee) structure. A shares have a "front-end load" fee structure. A certain percenta...

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"A ton of money" is a slang term for "a lot of money" For example, if something is very expensive, you might say, "It costs a ton of money." If you're optimistic about a new investment, you...

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A+ and A1 are actually two ratings from different ratings agencies: Standard & Poor's uses the A+ rating, and Moody's uses the A1 rating. Both ratings indicate a relatively high level of c...

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A- and A3 are actually two ratings from different ratings agencies: Standard & Poor's uses the A- rating, and Moody's uses the A3 rating. Both ratings indicate a relatively high level of c...

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A. Michael Spence is an economist who won the 2001 Nobel Prize for his work in market-signaling theory. Born in New Jersey in 1943 and raised in Canada, Michael Spence attended Princeton Un...

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AARP stands for the American Association of Retired Persons. It is a nonprofit organization that advocates and promotes the well-being of Americans 50 years of age or older. With rough...

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The ABA Bank Index is a composite market index comprised of small retail and community banks. Traded on the Nasdaq, the ABA Bank Index is made up of 440 small banking institutions nationwide. These b...

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An ABA transit number is a unique identifier assigned to banking institutions by the American Bankers Association (ABA).For those banks and banking institutions that qualify as account holders with th...

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An abacus is a counting device that performs basic mathematical functions.The abacus is believed to have been developed in the ancient Near East in the third millennium BCE. An abacus consists of a se...

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In the business world, abandonment refers to the purposeful surrender of ownership of an asset. For example, let's assume that Company XYZ owns an oil processing facility in Nigeria. The governme...

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Abandonment and salvage is a term that refers to one party's relinquishment of an asset and another party's subsequent claim to the asset.Abandonment and salvage frequently appears in insuranc...

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An abandonment clause is a provision in an insurance contract that ensures full compensation in the event of abandonment. For example, suppose a company has an insurance policy on a machine, and the ...

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An abandonment option is a clause in a contract that permits either party to leave the contract before obligations have been fulfilled.An abandonment option gives either party participating in a contr...

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Abandonment value refers to the value of a project or investment were it to be liquidated presently.Also called liquidation value, the abandonment value of a project or investment is the immediate val...

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An abatement is a reduction in a tax rate or tax liability. Property taxes are a common subject of abatement (though the term is often used when discussing overdue debt). For example, John ...

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An abatement cost refers to the cost associated with the voluntary or compulsory removal of an undesirable result of a production process.In many instances, companies produce goods or services that di...

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An ABC agreement is a contractual agreement between an investment house and its broker which allows the firm to purchase a seat (membership) on the New York Stock Exchange (NYSE).So called for its thr...

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In the strictest terms, abeyance means temporary inactivity. In the finance world, the term generally refers to unknown ownership.   Let's say John Doe owns an empty lot in City XYZ. ...

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Ability to pay refers to a borrower’s capacity to make good on his loan obligations. In banking, ability to pay is often called “financial capacity.”When considering a loan, a banker...

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Ability-to-pay taxation is a tax that's assessed based on the taxpayer's ability to pay the tax. John Doe earns $40,000 a year. Jane Doe earns $100,000 a year. The federal government wants mo...

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Also called the residual income model, the abnormal earnings valuation model is a method for predicting stock prices.In this theory, every stock is worth the company's book value per share if investor...

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Abnormal rate of return, also known as "alpha" or "excess return," is the fraction of a security's or portfolio's return not explained by the rate of return of the market. Rath...

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Abnormal return, also known as "alpha" or "excess return," is the fraction of a security's or portfolio's return not explained by the rate of return of the market. Instead, it ...

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In the business world, abnormal spoilage refers to the unusual loss of goods or work in progress. Company XYZ is a restaurant chain that orders a lot of produce, which it keeps in walk-in refrigerato...

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Above full-employment equilibrium occurs when a country's gross domestic product (GDP) is higher than normal. For example, let's say Country X's normal rate of GDP growth is 2% per year. ...

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When a bond's price is above par, the bond is selling at a premium above face value. In the bond world, par is the face value of a bond. That is, the par value is the amount the issuer promises t...

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Above the market describes the price at which a person wants to buy or sell a security. Let's say John Doe owns 100 shares of Company XYZ stock that he bought at $10 a share. He wants to sell the...

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Above water is a term to describe being financially stable. In accounting, the term often refers to assets whose market value is higher than book value. For instance, let's say John Doe has...

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An above-the-line deduction is a tax deduction that reduces adjusted gross income.   For example, let's assume that John Doe had $100,000 of total income for 2012. He begins to fill out hi...

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In the business world, absenteeism refers to the rate at which employees do not arrive for work as scheduled. Company XYZ is a health care provider. It has 25 nurses who are each responsible for seei...

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Absolute advantage exists when a business can produce a good or service more efficiently than any other business. Famed economist David Ricardo coined the term in the early 1800s. Let's assume...

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In an interest rate swap, the absolute rate is the sum of the fixed rate component and the variable bank rate. If two counterparties exchange a fixed interest rate and a variable interest r...

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An abstract of title is a history of a piece of property. For example, let's say John Doe wants to buy the house at 123 Main St. As part of the transaction, his title insurance company obta...

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An abusive tax shelter is an investment strategy that illegally shields assets from tax liability.   For example, let’s say John Doe and his wife have a child who begins college this ye...

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The Accelerated Cost Recovery System (ACRS) is a depreciation method that assigns assets periods of cost recovery based on specific IRS criteria. Since 1986, the Modified Accelerated Cost Recovery Sys...

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An accelerated death benefit is a portion of a life insurance policy that allows policyholders to receive their death benefits before they actually die. For example, let's say Jane Doe bought a life ...

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Accelerated depreciation is a depreciation method whereby an asset loses book value at a faster rate than the traditional straight-line method. Generally, this method allows greater deductions in ...

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Accelerated vesting occurs when a stock option becomes exercisable earlier than originally scheduled. For example, let's assume that John Doe receives options to buy 2,000 shares of Company XYZ, ...

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Accident and health benefits are a package of benefits offered by companies to employees and their families covering illness and providing income benefits in the event of accidental death or injury.Co...

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Accidental death and dismemberment insurance (AD&D) is coverage for accidental death or injury to the insured. “Dismemberment” usually covers the loss of a limb, paralysis, or the loss of hear...

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Accord and satisfaction is a legal term that denotes accepting compensation in lieu of some contractual obligation from another party. An accord is an agreement with conditions. Satisfaction means th...

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An account balance is a statement of how much money is in an account. For example, let's say John Doe deposits $100 into a new bank account. He withdraws $45 the next day. Then he deposits ...

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An account executive is a person responsible for managing a relationship with a customer. For example, let's say John Doe works for an advertising agency. The agency would like to have Company XY...

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Also called an account hold, an account freeze occurs when a bank or other financial institution prevents any transactions from hitting an account. For example, let's say John Doe is selling drug...

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An account history is a statement of all the activity that has occurred in an account for a given period of time. Monthly bank statements for common checking accounts often are account histories. The...

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Also called an account freeze, an account hold occurs when a bank or other financial institution prevents any transactions from hitting an account. For example, let's say John Doe is selling drug...

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An accountant is trained to compile, inspect, interpret, and/or report financial statements and tax returns that comply with governmental and regulatory authority requirements.Accountants often work i...

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An accountant's letter, also called an auditor opinion, is a written statement describing an auditor’s independent, unbiased and qualified evaluation of the accuracy and completeness of a co...

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An accountant's opinion is a concise written statement by a certified accountant concerning the accuracy of a company's financial records.An accountant's opinion is the first document in ...

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Accounting is the process of systematically recording, measuring, and communicating information about financial transactions. It’s a system of providing quantitative information about a business...

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Accounting conservatism is one of the four accounting conventions, which are standards, customs or guidelines regarding the application of accounting rules. There are four widely recognized accountin...

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Accounting conventions are standards, customs or guidelines regarding the application of accounting rules.There are four widely recognized accounting conventions that guide accountants:1.  Be con...

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Accounting earnings, or net income, represent the amount of money gained or lost after all costs, depreciation, interest , taxes and expenses have been deducted from a company's total sales. A simple...

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An accounting error is an error in the process of systematically recording, measuring and communicating information about financial transactions. Mary is an accountant at Company XYZ. She is paying th...

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An accounting period is the time interval reflected by the data in a financial statement.Firms prepare financial statements for publication and tax reporting based on an accounting period. Financial s...

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Accounting principles govern the rules of accounting and reflect the latest accounting methodologies.  Accounting principles govern how accountants calculate and present the details of a company...

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The accounting rate of return (ARR) is a simple estimate of a project's or investment's profitability that subtracts money invested from returns without regard to interest accrual or applicable taxes....

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Accounting research bulletins (ARBs) are publications from the Accounting Principles Board of the American Institute of Chartered Public Accountants. ARBs recommend accounting procedures. The oldest ...

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Accounts payable (A/P) are amounts owed to suppliers and other creditors for goods and services bought on credit. Let's assume that Company XYZ orders $1,000,000 in widget p...

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The accounts payable turnover ratio is a company's purchases made on credit as a percentage of average accounts payable. The formula for accounts payable turnover ratio is: Accounts Payable T...

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Accounts receivable (AR) are the amounts owed by customers for goods or services purchased on credit. The money owed to the company is called “accounts receivable” and is tracked as an account...

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Accounts receivable aging is a report showing the various amounts customers owe a company and the length of time the amounts have been outstanding. Here is sample of an aging report:   No...

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Accounts receivable financing, also called factoring, is a method of selling receivables in order to obtain cash for company operations. Accounts receivable (A/R) are amounts owed by customers for goo...

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Accounts uncollectible, also called allowance for doubtful accounts (ADA), is a reduction in a company's accounts receivable. Accounts uncollectible equals the amount of those receivables that the com...

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An accredited investor is an individual or organization allowed to participate in higher risk investments such as hedge funds, angel investor networks, and some limited partnerships. Genera...

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An accreting principal swap is a swap in which the two parties to the contract agree to pay interest on a growing principal amount.In a swap, one party is reducing its exposure to risk while the other...

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Accretion is growth, typically in earnings, usually after an acquisition or other significant event. In the bond world, accretion refers to the capital gains earned on a bond purchased at a discount. ...

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To be accretive is to increase earnings per share. This term is most often used in the context of acquisitions. Let's assume Company XYZ has EPS of 25 cents this year. Next year, it acquire...

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An accretive acquisition is an acquisition that increases the acquirer's earnings per share. Let's assume Company XYZ has EPS of 25 cents this year. Next year, it acquires Company ABC. The co...

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Accrual accounting is an accounting method whereby revenue and expenses are recorded in the periods in which they are incurred. Accrual accounting is the opposite of cash accounting, which recognizes...

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Accruals are records of revenue and expenses in the periods in which they are incurred. They are a key component of the accrual method of accounting. Company XYZ must insure one of its buildings. The ...

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To accrue is to record revenue and expenses in the periods in which they are incurred. Accruals, the result of accruing, are key components of the accrual method of accounting.   Company XYZ mus...

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An accrued expense refers to any expense incurred and reported during an accounting period, but for which payment has not yet been made.There are certain expenses which a company may incur over the co...

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Accrued interest refers to interest that builds up on a company's outstanding payables and receivables.  This interest has been accounted for, but not yet transacted.Companies maintain accoun...

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Accrued liabilities are records of revenue and expenses in the periods in which they are incurred. They are a key component of the accrual method of accounting. For example, let's assume Company ...

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Accrued market discount refers to the steady increase in value of a discounted bond from the time of purchase until maturity.The accrued market discount is a discount bond's increase in value resu...

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Accrued revenue is revenue recorded in the periods in which it is incurred. Let's assume Company XYZ is a widget consultancy that bills $100 an hour. In January, it performed 7,000 hours of consultin...

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Accumulated depreciation is the sum total of the depreciation recorded for certain assets. Let's assume Company XYZ bought a MegaWidget for $100,000 three years ago. The MegaWidget depreciates by...

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Accumulated earnings is the sum of a company's profits, after dividend payments, since the company's inception. It can also be called retained earnings, earned surplus, or retained capital.Let...

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The accumulated earnings tax is a charge levied on a company's retained earnings. Also called the accumulated profits tax, it is applied when tax authorities determine the cash on hand to be an ex...

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Accumulation phase refers to the period of time (often several years or even decades) during which an annuitant (annuity policyholder) is making cash contributions to an annuity account. Afte...

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The acid-test ratio is a measure of how well a company can meet its short-term financial liabilities.  Also known as the quick ratio, the acid-test ratio can be calculated as follows: Ac...

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An acquiree, also called a target, is a company that is purchased by an acquirer. Company XYZ has developed a powerful, new search-engine widget. Several search-engine companies may be interested in ...

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An acquirer is a person or company that purchases all or a portion of an asset or company. Company XYZ wants to acquire Company ABC. Company XYZ might just start buying ABC shares on the open market, ...

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An acquisition is the purchase of all or a portion of a corporate asset or target company. An acquisition is commonly mistaken with a merger – which occurs when the purchaser and the target both ce...

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Acquisition debt is money that is borrowed in order to purchase a company or asset. A leveraged buyout (LBO) is a method of acquiring a company with money that is nearly all borrowed. The basic idea ...

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An acquisition loan is money borrowed specifically to purchase a company or asset. The basic idea behind acquisition loans is that the acquirer purchases the target with a loan collateralized by the ...

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An acquisition premium is the difference between the actual price paid to acquire a company and the estimated real value of the acquired company before the acquisition. It is often recorded as "goodwi...

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An active bond is a corporate bond that is traded actively on the New York Stock Exchange (NYSE).Companies participating on the NYSE often choose to offer their bonds to investors in the same venue. T...

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Active bond crowd refers to the group of bond traders of the New York Stock Exchange (NYSE) that trades the highest volume of active bonds.Members of the NYSE's active bond crowd include those tra...

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The opposite of passive investing, active investing is an investment strategy that advocates significant trading and a short-term horizon. Active investment strategies generally dismiss long-term tre...

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Active management is an investment strategy that tries to create excess returns through the recognition, anticipation, and exploitation of short-term investment trends.Active management is the op...

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Also called tracking error, active risk is the difference between a portfolio’s returns and the benchmark or index it was meant to mimic or beat. There are two ways to measure active risk. Th...

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An activist investor invests in a company for the purpose of changing or influencing the company's decisions. Carl Icahn, known as a corporate "raider" in the 1980s, is one of the most fa...

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Activity based management (ABM) is an administrative method which examines how a company incurs costs from the standpoint of its activities rather than its final products. Companies have ordinarily m...

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An activity ratio is a metric which determines the ability of a company to convert its balance sheet accounts into revenue. Activity ratios assess how effectively a company is able to generate revenu...

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Actual return refers to the nominal return made on an investment during a given period. The actual return on an investment is the actual amount of money gained or lost during a period of time (e....

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An actuary is a person who evaluates the likelihood of certain events and creates plans to deal with those events. Actuaries must understand business, have good analytical skills, and be aware of how...

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An ad valorem tax is a property tax levied based on the value of the property in question.Ad valorem (Latin for "according to the value") taxes are levied solely as a percentage of a property&...

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Adam Smith is one of the world's most famous economists. Modern capitalism owes its roots to Adam Smith and his Wealth of Nations, which many consider the single most important economic work in histor...

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Additional paid-in capital (APIC), also called capital in excess of par value, is a measure of how much money investors have pumped into the company since inception in return for equity. The line ...

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An adjustable rate mortgage (ARM) is a type of mortgage using a varying interest rate calculated by adding a premium to a specific benchmark rate. These loans are also called variable-ra...

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The adjusted balance method determines the finance charges on an account once all credits and debits for the accounting period have been posted.The adjusted balance method is used to determine the per...

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Adjusted basis refers to the increase or decrease in an asset's value due to depreciation or capital enhancements.From the time an asset is acquired until the time it is sold, an asset experi...

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Adjusted cost base (ACB) is an income tax term that refers to an adjustment in an asset's book value resulting from the cost of improvements, payouts, and similar improvements or dispositions. Let's ...

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Adjusted gross income (AGI) is the figure used by the Internal Revenue Service to determine a taxpayer's eligibility for certain tax benefits.AGI is calculated by adding together all qualified income ...

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Adjusted present value (APV) refers to the net present value (NPV) or investment adjusted for the interest and tax advantages of leveraging debt provided that equity is the only source of financi...

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Advance refunding occurs when a bond issuer, usually a municipality, invests the proceeds from the sale of new bonds in U.S. Treasurys with the intent of using the Treasurys to pay off the old bonds. ...

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An adverse opinion refers to the conclusion by an auditor that a company's financial statements inaccurately characterize the company's financial standing.An adverse opinion is an internal or ...

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Adverse selection refers to an insurance company's coverage of life insurance applicants whose risk as policyholders, due to their way of life, is significantly higher than the company perceives. Ins...

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In the finance world, an advisor (also spelled adviser) is an educated investment professional who helps people and businesses set and meet long-term financial goals. An advisor is similar to an inve...

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An affirmative obligation is a responsibility incumbent upon New York Stock Exchange (NYSE) specialists to ensure that a market for a stock still exists in the absence of sufficient supply or demand.I...

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The Affordable Care Act (ACA), typically referred to as "Obamacare" but formally known as the Patient Protection and Affordable Care Act (PPACA), is a bill signed into law on March 23, 2010, by P...

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After hours trading is the trading that occurs on electronic market exchanges after regular stock market trading hours have ended.In the United States, pre-market trading occurs between 8:00 a.m. and ...

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After market trading occurs on an electronic market exchange after regular trading hours have ended. In the United States, after market trading typically occurs between 4:00 p.m. and 6:30 p...

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After the bell is a phrase referring to the end of an exchange's daily trading session. Let's say that Company XYZ wants to announce the sudden departure of its CEO and the appointment of the...

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After-tax operating income (ATOI) is a company's operating income after taxes. ATOI is very similar to net operating profit after tax (NOPAT) The formula for ATOI is: ATOI = Gross Revenue - Operat...

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After-tax profit margin is the percentage of revenue remaining after all operating expenses, interest, taxes and preferred stock dividends (but not common stock dividends) have been deducted from a co...

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Agency bonds are bonds issued by agencies of the U.S. government. Two types of entities issue agency bonds: government corporations, which are entities owned or controlled by the federal go...

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Agency costs usually refers to the conflicts between shareholders and their company's managers. A shareholder wants the manager to make decisions which will increase the share value. Managers, ins...

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Aggressive accounting refers to an accounting department's deliberate and purposeful tampering with its company's financials in order to outwardly characterize its revenues as higher than they...

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An aggressive growth fund is a mutual fund which invests exclusively in high-risk/high-return stocks in an attempt to benefit from the potentially high returns on start-up companies and IPOs.An aggres...

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An aggressive investment strategy emphasizes a substantially higher portfolio allocation of high-return equity over debt in order to generate high returns through exposure to high risk.An aggressive i...

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An air pocket stock is one that experiences an abrupt and severe price decline.Named for the dropping action of an aircraft flying through a random low-pressure air pocket, an air pocket stock experie...

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Alan Greenspan was the chairman of the Federal Reserve Board of Governors from 1987 to 2006.Alan Greenspan was born in 1926 in New York. His father was a stockbroker and his mother was a salesperson. ...

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Alimony is a series of payments made to an ex-spouse or separated spouse according to a divorce decree or separation agreement.Also known as "spousal support," the idea behind alimony is to pr...

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All or nothing (AON), also known as an "all or none" order, is a condition used on a buy or sell order which instructs a broker to execute the order in its entirety or to do nothing. For example...

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An all weather fund is a mutual fund that performs well regardless of market conditions.The performance of an all weather fund is largely unaffected by market climate. The term unofficially describes ...

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An allowance for bad debt is essentially a reduction in a bank's accounts receivable. The allowance for bad debt equals the amount of the banks loans that it does not expect to collect. Let's...

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An allowance for doubtful accounts (ADA) is a reduction in a company's accounts receivable. The ADA equals the amount of those receivables that the company's management does not expect to actually col...

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Alpha, also known as "excess return" or "abnormal rate of return," is one of the most widely used measures of risk-adjusted performance. The number shows how much better or worse a fund performed ...

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An alternative asset is an item that has intrinsic value, but is not traditionally considered a financial asset. Alternative assets are best defined by their absence from the capital m...

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The alternative minimum tax (AMT) is income tax owed using a parallel tax code designed to ensure that every taxpayer, particularly rich ones and corporations, pay at least some income tax each year.C...

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An alternative order is a group of limit orders linked together within a brokerage account. If one order is executed, all other linked orders are automatically canceled.Sometimes called an "either...

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The Altman Z-Score (named after Edward Altman, the New York University professor who devised it) is a statistical tool used to measure the likelihood that a company will go bankrupt.Though Altman...

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Altman's Z-score is a financial statistic that is used to measure the probability of bankruptcy. Altman's Z-score is used to determine the likelihood of a company going bankrupt. A company's Altman's...

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An amended return is a Form 1040X filed by a taxpayer to correct mistakes made on a Form 1040, Form 1040A, Form 1040EX, Form 1040NR or Form 1040NR-EZ (U.S. Individual Income Tax Return) filed in the p...

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An American Depositary Receipt (ADR) is a certificate that represents shares of a foreign stock owned and issued by a U.S. bank. The foreign shares are usually held in custody overseas, but the certif...

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An American Income Trust is a type of royalty trust. A royalty trust is a type of corporation created to act as the owner of the mineral rights to wells, mines and similar properties. ...

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The American National Standards Institute (ANSI) is a private, non-profit organization that oversees the development and enforcement of standards for products, services and personnel in both the Unite...

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The American Opportunity Tax Credit (formerly known as the Hope Tax Credit) is a tax credit available to college students or their parents to help pay for college expenses. Eligible taxpayers can qua...

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An American option is a put option or call option that can be exercised at any time on or before its expiration date. For example, an investor holding an American option that expires on the last ...

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The American Rule, in law, is a rule by which each party pays its legal fees resulting from litigation.  This contrasts with the English Rule, which is the global norm, where the losing party pay...

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The American Stock Exchange (AMEX), sometimes referred to as the "Little Board," is a stock and options exchange in New York.  Though not as large as the New York Stock Exchange (NYSE), the...

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The AMEX Biotech Index is the benchmark index for the Biotechnology industry. This index was started on October 18, 1991 with a value of 200. The index broke below 100 several times prior to 1999 and ...

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Amortization calculates how loans (like fixed-rate mortgages) are allocated towards principal and interest payments over the loan term.  It may also refer to an accounting method that expe...

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An amortization schedule is a chart that shows the amounts of  principal and interest due for each loan payment of an amortizing loan. An amortizing loan is a loan that requires regular payme...

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An analyst gathers and interprets data about securities, companies, corporate strategies, economies or financial markets. Analysts are sometimes called financial analysts, securities analysts, equity ...

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An analyst expectation is typically a prediction of a company's quarterly or annual earnings per share. Securities analysts are tasked with the job of making earnings estimates for the compa...

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An angel investor is a person who invests in highly risky companies, typically before those companies have any revenue or profits. Usually these companies are start-ups and/or small businesses that ty...

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Same as the effective annual interest rate, the annual equivalent (AER) rate is the rate of interest an investor earns in a year after accounting for the effects of compounding. The formula for AER is...

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An annual general meeting (AGM) is an SEC-mandated gathering of a public company's senior management and shareholders for the purpose of exchanging important information.The Securities and Exchang...

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Annual Percentage Rate (APR) is the interest rate that reflects all the costs of the loan during a one year time period. The annual percentage rate includes loan fees and the compound interest rate d...

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Annual percentage yield (APY) is the rate of interest an investor earns in a year after accounting for the effects of compounding. APY is not the same as annual percentage rate (APR). The formula ...

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An annual report is an audited corporate document that details the business activity and financial status of a publicly-held company over the previous year. The Securities and Exchange Commission...

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Annualize means to express a rate in terms of its annual equivalent. The concept is best illustrated with an example: Assume a portfolio generates a 1% return in one month. The monthly r...

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An annuitant is the person whose age and life expectancy affect the size of the monthly payments to the owner of an annuity. An annuity is similar to a life insurance product, but there are important...

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Annuitization is the act of triggering a series of payments, usually from an annuity. An annuity is a contract whereby an investor makes a lump-sum payment to an insurance company, bank or other fina...

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To annuitize is to choose to receive a series of payments, usually from an annuity. An annuity is a contract whereby an investor makes a lump-sum payment to an insurance company, bank, or other finan...

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An annuity is a financial contract written by an insurance company that provides for a series of guaranteed payments, either for a specific period of time or for the lifetime of one or more individual...

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An anti-dilution provision is a clause in an option, security, or merger agreement that gives the investor the right to maintain his or her percentage ownership of a company by buying a proportionate ...

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An anti-greenmail provision is a clause in a corporation's charter that deters the corporation's board from conducting a stock buyback.To understand an anti-greenmail provision, one must first...

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The anti-Martingale system is an investment strategy that doubles the position sizes of securities that experience gains. By using this method, investors will overweight their winning investments in h...

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An anti-takeover measure is a precautionary strategy used by companies to avoid being bought by another company.For a myriad of reasons, a company may not want to be taken over. Thus, if management be...

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An anti-takeover statute is a law designed to deter companies from launching hostile takeovers of other companies.Anti-takeover statutes exist in some places in order to protect the autonomy and inter...

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Antitrust refers to federal laws disallowing companies from monopolizing markets, engaging in price discrimination or price fixing, or otherwise restraining free trade. Antitrust laws ...

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An any-and-all bid is an offer to acquire a company whereby the potential buyer offers to purchase any and all of the shareholders' shares at a specific price by a certain deadline. Let's ass...

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An appraisal is an estimate of the market value of an item by a certified professional.Appraisals can be assigned to nearly any item, including real estate. Appraisals are conducted by individuals cal...

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An appraisal ratio is the ratio of a mutual fund's alpha to its risk. The formula for the appraisal ratio is: Appraisal Ratio = Alpha / Fund's Unsystematic Risk Let's assume Mutual Fu...

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An appraiser is a person capable of providing an appraisal. An appraisal is a document that formally describes the value of a piece of property, usually exceeding $5,000. For example, let...

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Appreciation is an increase in the value of an investment. Let's assume you purchased one share of Company XYZ stock for $5. If that share's value increased to $7, the investment has a...

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Arbitrage is the process of exploiting differences in the price of an asset by simultaneously buying and selling it. In the process the arbitrageur pockets a risk-free return. Differences in prices us...

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Arbitrage pricing theory (APT) is a well-known method of estimating the price of an asset. The theory assumes an asset's return is dependent on various macroeconomic, market and security-specific fact...

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An arbitrage trading program is a software program that attempts to take advantage of very small price differences between securities, such as index futures and the underlying stocks represented. The ...

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An arbitrageur is a person who exploits the differences in the price of a given security by simultaneously purchasing and selling that security. For example, if Company XYZ's stock trades at $5 p...

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Arbitration is a process in which impartial parties (arbitrators) help disagreeing parties resolve a dispute. Contracts, particularly financial ones, with disputes often go to arbitration. In the fin...

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The arithmetic mean is the average of a series of numbers. The formula for calculating the arithmetic mean is: Arithmetic mean = (X1 + X2 + X3 + ... +XN) / N where X1, X2, X3, XN are ...

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The arithmetic mean average is the average of a series of numbers. The formula for calculating the arithmetic mean average is: Arithmetic mean average = (X1 + X2 + X3 + ... +XN) / N w...

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The Arms Index (Trin) uses the ratio of advancing issues to declining issues to signal when the market is deeply overbought or oversold.The Arms Index is named after its designer, Richard Arms. I...

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The ascending triangle is marked by two significant technical features. At its top, there is a line of resistance. This is a supply line, or a price at which sellers step into the market and unload th...

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The ask price is the lowest price a prospective seller is willing to accept in exchange for a specific security. While the ask price is the lowest price a prospective seller is willing to accept,...

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The ask size is the number of shares that a seller is willing to sell at a given price. For instance, a seller is willing to part with 3,000 of their shares at a specific asking price.  Pe...

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Assessed value refers to the value of an asset -- usually real estate -- as determined by an assessor for tax purposes. The assessed value is often computed by incorporating the purchases and sale...

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An asset is an economic resource that can be owned by an individual, company, or country. Assets are expected to provide future economic benefits like:  Increased value for a company...

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Similar to diversification, asset allocation refers to the portioning of a portfolio among various types of investment asset classes so as to maximize return for a given level of risk. Just as it is ...

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Asset backed securities (ABS) are securities backed by the cash flows of a pool of assets. Home equity loans, auto loans, credit card receivables, and student loans commonly back th...

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An asset class is a group of investments that have similar characteristics, behave similarly and are subject to similar market forces, laws and regulations. Typical asset classes include stocks, ...

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Asset management has two general definitions, one relating to advisory services and the other relating to corporate finance. In the first instance, an advisor or financial services company provides...

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The asset turnover ratio is a measure of how efficiently a company's assets generate revenue. It measures the number of dollars of revenue generated by one dollar of the company's assets.  The f...

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An asset-or-nothing call option either pays the value equal to one unit of the underlying asset if that asset is above the strike price or pays nothing if the asset is below the strike price at expira...

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An asset-or-nothing put option is an option with two possible outcomes: a fixed amount if the market value is below the strike price and no payment at all if it is higher than the strike price.A typic...

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Assets under management (AUM) refers to the total market value of investments managed by a mutual fund, money management firm, hedge fund, portfolio manager, or other financial services company.AUM ge...

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An assignable contract allows a contract holder to assign his or her rights and obligations under the contract to a third party. The most common assignable contracts are futures contracts.Let's as...

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An assumed interest rate is used to calculate an annuity's periodic income payments. To understand how the assumed interest rate works, one must first remember how an annuity works. It's a co...

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An asymmetric digital subscriber line (ADSL) is a modem technology that enables information and video to be transmitted over regular telephone lines.Though the mechanics of Internet access is highly t...

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Asymmetric information occurs when information is held by one, but not all, of the parties to a transaction. For example, consider a potential buyer of Company XYZ shares and the seller of those shar...

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In the bond world, at par means "equal to face value." Face value, also known as par value, is the amount the issuer promises to pay the bondholder when the bond matures. Let's assume Compa...

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An auction market is a market in which buyers indicate the highest price they are willing to pay and sellers indicate the lowest price they are willing to accept. A trade occurs when the buyer and sel...

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In the tax world, an audit refers to the review of a taxpayer's tax return for accuracy.   In the accounting world, an audit is the examination and verification of a company's financial...

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An audit trail refers to the complete record of events that occurred in the execution of a transaction.When a transaction is executed (e.g. a business purchase), each documented step taken makes up th...

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In the accounting world, an auditor is a professional who examines and verifies a company's financial statements and records and in the United States examines a company's compliance with Gener...

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An auditor's opinion is a written statement describing an auditor's independent, unbiased and qualified evaluation of the accuracy and completeness of a company's financial statements and practices, a...

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An auditor's report is a statement included in a company's annual financial report that certifies the validity of a company's financial statements according to an outside auditor. By law, companies i...

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An auto loan allows someone to borrow money to purchase a car or truck. Auto loans are usually simple-interest loans that are to be paid back over a period of typically three or five years. A c...

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The Automated Bond System (ABS) is a computerized platform that tracks the prices for inactive bonds on the New York Stock Exchange (NYSE).Many bonds on the NYSE do not experience much price movement ...

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ACH, which stands for or Automated Clearing House, is a fund transfer system operated by NACHA, the National Automated Clearing House Association.   Launched in 1974, ACH is used for a wid...

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An automatic investment plan (AIP) is a strategy whereby an investor can arrange for funds to transfer into an investment account automatically on a regular basis.Let's assume you want to save mon...

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The average annual growth rate (AAGR) is the arithmetic mean of a series of growth rates.The average annual growth rate (AAGR) formula is:AAGR = (Growth Rate in Period A + Growth Rate in Period B + Gr...

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The average annual return (AAR) is the arithmetic mean of a series of rates of return.The formula for AAR is: AAR = (Return in Period A + Return in Period B + Return in Period C + ...Return in Peri...

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Average balance is either the simple or the weighted average balance of a financial account during some period of time.A simple average balance is calculated by adding up the beginning balance and the...

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The average daily balance method is a way of calculating interest by considering the balance owed or invested at the end of each day of the period rather than the balance owed or invested at the end o...

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Average down (or averaging down) refers to the purchase of additional units of a stock already held by an investor after the price has dropped. Averaging down results in a decrease of the average pric...

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Average Revenue Per User (ARPU) is a measurement of profit in terms of customers.ARPU is generally applied for financial analysis at companies which offer subscriptions to customers.The formula for av...

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Average true range (ATR) is a technical indicator that measures the volatility of an asset's average daily price movements. Average true range starts with the concept of "true range." Tru...

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