R-squared, usually represented as R2, is a technique that evaluates the statistical relationship between two series of events. It is commonly used to describe the portion of a security's movement ...

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A rabbi trust is a type of deferred compensation plan that lets employers transfer money into a trust for executives. Rabbi trusts were first used to compensate rabbis, which is how they get their na...

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When most people think of racketeering, thoughts of 1930s mobsters come to mind. Gangs of this time period are often associated with organized crime and operating “rackets” to illicitly earn a...

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In the finance world, raider is short for corporate raider, which is a person or entity that purchases a company for the sole purpose of selling off its assets. Raiders are attracted to companies who...

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A rain check is a written promise from a seller to a buyer. It guarantees that a buyer can purchase a product for a certain price at a later date, usually because the item is out of stock. ...

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A rainbow option is an option linked to two or more underlying assets. Just as rainbows have many colors, options can have many underlying assets. A Margrabe option, for example, gives the buyer the ...

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A rainmaker is a successful salesperson or other individual who generates significant revenue for a company. Let's say John Doe is a salesman for Company XYZ. He has a lead on a potential customer, C...

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A raintaker is a successful salesperson or other individual who generates significant revenue for a company and then takes those clients with her to a new employer. A rainmaker is a successful salesp...

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A rally is a period of hours, days, weeks, months, or sometimes years during which securities prices consistently rise.   Identifying and measuring rallies is both art and science. Of course, ...

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A ramp up is an increase in the amount of products or services a company sells, usually by expansion into new markets or geographic regions. Let's say John Doe opens a sandwich shop. He offers cu...

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The random walk theory states that market and securities prices are random and not influenced by past events. The idea is also referred to as the "weak form efficient-market hypothesis." ...

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A rate and term refinance occurs when a borrower replaces one mortgage with another mortgage that has a different maturity and interest rate. For example, let's say John Doe bought a house 10 years a...

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Rate of Change (ROC), is the percentage change in price over a specified time frame. It is one of the most basic ways to measure momentum. To calculate ROC, you divide the current price by an earlier...

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A rate of return is measure of profit as a percentage of investment. Let's say John Doe opens a lemonade stand. He invests $500 in the venture, and the lemonade stand makes about $10 a day, or about ...

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A rate trigger is a change in interest rates that prompts a bond issuer to call its bonds.   Let's say Company XYZ issued a bond with a 10% coupon rate this  year. The bonds mature i...

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In personal finance, the term rating commonly refers to a credit rating score issued by the Fair Isaac Corporation (a "FICO score"). A person's credit rating indicates how creditworthy he ...

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Ratings Service is provided by companies that evaluate the risks associated with debt securities. Companies, such as Moody's, Standard & Poor's (S&P), and Fitch, provide rati...

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Ratio analysis is the exercise of calculating various pieces of financial data in relation to one another. There are dozens of financial ratios out there. In fact, there are too many to list here in ...

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Raw materials are commodities, parts or substances that are assembled or processed to form a final product.   For example, the raw materials involved in chocolate chip cookies are butter, suga...

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A re-offer price is the price at which an underwriter offers a security to the general public. In order to sell its securities to the public, a company first needs to retain the services of an invest...

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Reaffirmation occurs when a lender agrees to forgive a borrower's debt and then the borrower agrees to repay the debt anyway. For example, let's assume that John Doe borrowed $100,000 from Ba...

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Reaganomics is a reference to U.S. president Ronald Reagan's economic policies between 1981 and 1989. Also called voodoo economics, Reaganomics is an idiomatic expression used in reference to the tri...

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A real asset is a tangible, touchable asset that has value. For example, Company XYZ's factory is a real asset, its fleet of cars are real assets and even its cubicles are real assets. Howe...

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Real estate refers to land, as well as any physical property or improvements affixed to the land, including houses, buildings, landscaping, fencing, wells, etc. Vacant land and residential ...

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A real estate agent, working on behalf of a licensed real estate broker, is a licensed professional who works on behalf of the buyer and seller of real estate during a sales transaction.A real estate ...

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A real estate investment trust (REIT) is a closed-end investment company that owns assets related to real estate such as buildings, land and real estate securities. REITs sell on the major stock mark...

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Real estate owned (REO) is a term describing real estate owned by lenders, usually because the lender has foreclosed on the property. Let's say John Doe falls behind on his house payments, and hi...

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The Real Estate Settlement Procedures Act, abbreviated as RESPA, is a federal ordinance that was established by the U.S. Department of Housing and Urban Development (HUD). It is currently supervis...

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A real estate short sale is the sale of property that is worth less than what is owed on it. For example, let's say John Doe buys a house for $500,000. He makes a down payment on the house and bo...

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Real gross domestic product, or real GDP, is a measure of the value of all goods and services produced by an economy in a period. Because the value is adjusted for inflation it can separate out th...

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Real income is inflation-adjusted income or wages. For example, let's say John Doe works for Company XYZ. His salary is $100,000 per year. He started the job five years ago at $100,000 and ...

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A real interest rate is an inflation-adjusted interest rate. Let's say John Doe has a bond from Company XYZ that pays a 4% coupon. If the inflation rate is 3% per year, then the value of th...

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Real property is anything that is attached to land. For example, Company XYZ's factory, the five-acre lot on which the factory sits and whatever oil, gas or mineral rights that are attached...

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A real rate of return is a return on an investment that is adjusted for inflation, taxes or other external factors. Let's say John Doe opens a savings account that offers a 2.5% interest rate (th...

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A real-time quote is a stock quote that feeds directly from the exchange and does not have a time delay.   A stock quote is an estimate of price or a price at which one party is willing to buy...

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Realized gains are increases in the value of an asset that has been sold. This concept is the opposite of paper profit -- a paper profit only turns into a realized gain when you actually sell the secu...

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A realized loss is a decrease in the value of an asset that has been sold. This concept is the opposite of paper loss or unrealized loss -- a paper loss only turns into a realized loss when you actual...

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A realtor is a professional designation for a real estate broker who has membership in the National Association of Realtors (or NAR).Real estate agents must be certified members of the NAR in order to...

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Rebalancing is the adjustment to an investment portfolio that realigns the investor's holdings with their targeted allocation of assets. Investors often use an asset allocation method in their in...

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In stock trading, a rebate occurs when a short seller has taken a short position in a stock that then pays a dividend before the settlement date. The rebate is the dividend that the short seller is re...

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A recapture occurs when a person or entity takes back an asset from a buyer under certain conditions. Taxing authorities can implement tax recaptures in which the taxing authority requires a taxpayer...

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A recapture clause is language in a contract that allows a person or entity to take back an asset under certain conditions. Let's say John Doe owns the ABC Shopping Center. He leases retail space...

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The term receivables is short for accounts receivable (A/R), which are amounts bought by customers for a company's goods and services. Company XYZ sells $1 million in widget parts to a widget manu...

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The receivables turnover ratio is a company's sales made on credit as a percentage of average accounts receivable. The formula for receivables turnover ratio is: Receivables Turnover = Net Cr...

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Receivership is a form of bankruptcy in which a court-appointed trustee reorganizes the bankrupt entity.   In a receivership, a receiver takes custody of the company's property and operati...

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A recession is two consecutive quarters of declining gross domestic product (GDP) Let's assume that there has been a significant decline in industrial production, employment, and wholesale ...

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A stock or other investment is recession resistant when it tends to rise in value when the economy falters (and the markets falter with it). Recession-resistant investments are usually countercyclical...

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A recession-proof investment does well or at least remains stable during economic contractions. Defensive stocks are the most famous kind of recession-proof investments, because they generally are ab...

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The record date is the date used to determine the holders of a security who are entitled to receive a dividend or distribution.When a company is preparing to distribute dividends to shareholders, it u...

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A record high is the highest price a security achieves in a given time period. Let's look at this random chart for Cisco Systems (CSCO). note the jagged line, which reflects the stock price. For ...

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A record low is the lowest price a security achieves in a given time period.   For example, let's look at this random chart for Cicso Systems (CSCO). note the jagged line, which reflects t...

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A recording fee is the cost of making a public record of a real estate transaction. Let's say John Doe buys a house from Jane Smith for $300,000 on October 1. At the closing of the transaction, J...

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A rectangle formation describes a price pattern where supply and demand are in approximate balance for an extended period of time. In such a scenario, the shares tend to move in a narrow range, hittin...

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Recurring revenue is revenue that a company has reasonable assurance will occur at regular intervals in the future.   Let's assume Company XYZ sells a widget-cleaning service. Its custome...

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Red is slang for loss. Losses are the negative amount remaining after all costs, depreciation, interest, taxes, and other expenses have been deducted from total sales. The formula for profit is: To...

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A red herring is a registration statement filed with the Securities and Exchange Commission (SEC) by a company that intends to make a public equity offering. The red herring is a rough draft of the co...

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A redundant asset is an asset that generates income, but is not linked to the fundamental operations of the company.Also known as a non-operating asset, a redundant asset usually generates some type o...

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A reference rate is an interest rate that determines another interest rate. Let's say you want to borrow $5,000 to start a business. Company XYZ offers you a variable interest rate loan at prime ...

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Refinance refers to the replacement of a debt with new debt bearing different terms. Financing involves borrowing a specific amount of money over a length of time at an agreed-upon interest rate. Pay...

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Refund can refer to the amount that the Internal Revenue Service will pay to a taxpayer based an overpayment of estimated tax or employer withholding taxes during the year. A refund also refers t...

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Refunding protection is bond provision that keeps an issuer from using cheaper debt to redeem a bond issue before it matures.Let's assume Company XYZ issues $10 million of 10% coupon bonds that ma...

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A Registered Investment Advisor (RIA) is an investment manager who is registered with the Securities Exchange Commission (SEC) and who must comply with SEC regulations. An investment manager who is a...

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A registered principal is a person in a management position in the investment banking or securities business. For example, a registered principal might oversee the trading and sales operations at a br...

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Regression is a statistical method used in finance and other fields to make predictions based on observed values. It is a measure of how correlated a group of actual observations are to a model’...

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A regressive tax is a tax that increases as a percentage of income as the amount of income declines. The United States has the opposite of a regressive tax system. That is, it has a progressive tax s...

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Regulation DD is a directive created by the Federal Reserve. It was enacted to fulfill the Truth in Savings Act (TISA) that was passed in 1991, which requires lenders to provide accurate information a...

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Regulation Fair Disclosure (Reg FD) requires all publicly traded companies to disclose material information to all investors simultaneously.The Securities and Exchange Commission (SEC) issued a ruling...

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Regulatory data is information that must be provided by a company to a regulatory agency.  Protecting consumers is the main rationale offered by governments looking to regulate economic activity...

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Reinvestment rate is the rate at which an investor can reinvest cash flows from an investment. Put simply, an investor might receive, say, a 6% dividend, but what does he do with that money when he g...

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Reinvestment risk is the chance that an investor will not be able to reinvest cash flows from an investment at a rate equal to the investment's current rate of return.For example, consider a Compa...

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Also called price persistence, relative strength is the tendency of a security's price to follow the trend of an index like the S&P 500. It is a measure of momentum.To illustrate, let's as...

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The Relative Strength Index (RSI) was first developed by renowned technical analyst J. Welles Wilder. It is not to be confused with relative strength, which compares a stock's price performance to...

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The relative strength line compares a stock's price performance against that of the overall market, usually as measured by the S&P 500. However, if the trader desires, the comparison can be ma...

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Also called systematic risk or non-diversifiable risk, relevant risk is the fluctuation of returns caused by the macroeconomic factors that affect all risky assets.  Diversifiable risk is the...

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The term remote deposit capture (RDC) refers to a technology that uses a smartphone to make online deposits to a user's bank account without having to physically visit a branch location.RDC is a s...

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Reorganization may refer to the rehabilitation of a company's finances pursuant to a bankruptcy. It can also refer to any process that affects the tax structure of a corporation. In addition, reor...

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Repayment usually refers to the payments on a debt.  Under the terms of a loan, repayment can have different schedules and requirements. For example, a loan may be amortized over a spe...

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A repurchase agreement is the sale of a security combined with an agreement to repurchase the same security at a higher price at a future date.  It is also referred to as a "repo." F...

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Rescission is the cancelling of a contract so that it is no longer legally binding. A court can release parties from any obligations under the contract and revert them to their positions before the co...

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Research and development (R&D) aims to create new technology or information that can improve the effectiveness of products or make the production of products more efficient.Let's say company X...

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The reserve ratio is the percentage of deposits that the Federal Reserve requires a bank to keep on hand at a Federal Reserve Bank.For example, let's assume that Bank XYZ has $400 million in deposits....

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A reserve report is filed by companies in the oil and gas industry. It estimates remaining quantities of oil and gas (reserves) expected to be recovered from existing properties. The Securi...

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Reserve requirements are Federal Reserve rules that require banks and other financial institutions to keep a strict percentage of their deposits on reserve at a Federal Reserve bank. The Federal Reser...

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

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In technical trading analysis, resistance is an upper limit in a price channel in which a security’s price tends to stay. Price channels can slope up (indicating bullish sentiment) or down (indi...

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A restricted card list is a list of credit cards that are reported stolen, canceled or compromised in some way. A restricted card list is also called a "warning bulletin," "hot list" ...

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Restricted stock is stock that the owner cannot sell immediately or under certain conditions. People usually come to own restricted stock through an IPO or a merger. For example, let's assume tha...

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A restrictive covenant is a promise a company makes to not exceed certain financial ratios or not conduct certain activities, usually in return for a loan or bond issue.     Let&rsqu...

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Restructure, or restructuring, refers to the management process of reorganizing a company to make it more profitable. During a major transition, a buyout or a bankruptcy, for example, the managem...

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Retail banking refers to the consumer-oriented services offered by commercial banks. These services include checking and savings accounts, mortgages and various types of loans and investment services ...

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A retail investor is an individual who purchases securities for his or her own personal account rather than for an organization. Retail investors typically trade in much smaller amounts than instituti...

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Retained capital 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 accumulated earnings.Let...

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Retained earnings are the sum of a company's profits, after dividend payments, since the company's inception. They are also called earned surplus, retained capital, or accumulated earnings. Let's ass...

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A retracement is a temporary reversal in the movement of a stock's price. Let's say the stock of company XYZ increased 20% over the course of a day. Anyone who has ever looked at a trend ...

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Return of capital (ROC) is a payment from a security to an investor from funds that were not derived from net income. Real estate investment trusts (REITs), mutual funds, master limited partnerships ...

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Return on assets (ROA) is a financial ratio that can help you analyze the profitability of a company. ROA measures the amount of profit a company generates as a percentage relative to its total assets...

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Return on capital is a profitability ratio. It measures the return that an investment generates for capital contributors, i.e. bondholders and stockholders. Return on capital indicates how effecti...

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Return on equity (ROE) is a measurement of how effectively a business uses equity – or the money contributed by its stockholders and cumulative retained profits – to produce income. In other w...

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Return on invested capital (ROIC) is a profitability ratio. It measures the return that an investment generates for those who have provided capital, i.e. bondholders and stockholders.  ROIC t...

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Return on net assets is a metric which measures a company's financial performance with regard to fixed assets combined with working capital.Return on net assets (RONA) is calculated by dividing a ...

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Return on total capital is a profitability ratio. It is a measure of the return an investment generates for those who contribute capital, i.e. bondholders and stockholders.  Return on total c...

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Revaluation refers to the adjustment of the exchange rate of a country's currency.In countries with fixed exchange rate rates, the central bank (i.e. the country's government) can change the o...

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Revenue, also called sales (or turnover, in the UK), refers to the value of the products and services a company sells. Net revenue usually refers to a company's sales net of discounts and returns. ...

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Revenue bonds are municipal bonds that are issued to fund specific projects that generate their own revenue. Let's assume ABC Town wants to build a new toll road, but it doesn't have the mone...

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Revenue per available room, or RevPAR for short, is a ratio commonly used to measure financial performance in the hospitality industry. The metric, which is a function of both room rates and occupancy...

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Revenue per employee measures the average revenue generated by each employee of a company.  Revenue per employee is calculated by dividing a firm's revenue by its total number of workers (Revenu...

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A reverse mortgage is an arrangement whereby a homeowner borrows against his or her home equity and receives regular payments from the lender until the total payments reach a predetermined limit. To ...

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A reverse split is a consolidation of a corporation's shares according to a predetermined ratio. Company XYZ wants to conduct a reverse stock split. It decides that each shareholder will own one ...

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A reverse takeover is the purchase of a publicly-traded company by a smaller private company.In what is also called a reverse merger, a private company purchases an increasingly controlling stake in a...

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A reverse triangular merger is a merger in which the acquisition is carried out by a subsidiary of the acquiring company.In a reverse triangular merger, a subsidiary of the acquiring company executes ...

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A revocable trust is a trust with provisions that can be altered by the grantor. Sometimes a revocable trust is referred to as a "living revocable trust."A trust is a legal instrument that all...

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Revolving credit is a line of credit individuals and corporations can borrow from and pay back as needed. Revolving credit is also referred to as a line of credit (LOC) Before granting a revolving...

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Right of first refusal grants the terms of a transaction to one party to determine if they are interested (i.e., the holder of the right of first refusal) before it is given to a third party.Right of ...

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Rising star companies have a low credit rating (often "junk"), but only because they are new to the bond market or still establishing a track record.  A rising star is a relatively new c...

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Risk averse is an oft-cited assumption in finance that an investor will always choose the least risky alternative, all things being equal. Modern portfolio theory (MPT), which is the theory behind wh...

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A risk free rate of return, often denoted in formulas as rf,, is the rate of return associated with an asset that has no risk (that is, it provides a guaranteed return). It is also commonly referr...

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A risk lover is an investor who has a high propensity to engage in risky investments. A risk lover is the opposite of a risk-averse investor. Let's assume you are considering purchasing some stoc...

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A risk-free asset is an asset that provides a virtually guaranteed return.  Treasury bills are the most common example of risk-free assets. Because the U.S. government has the authority to simpl...

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A road show is a presentation made about an investment opportunity usually given by a representative of a company at the offices of potential investors. Businesses must travel and meet with poten...

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The rolling EPS is a variation of the earnings per share (EPS) metric which measures a company's profitability.The rolling EPS is measured on the basis of a year and is calculated by adding a comp...

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Rolling returns are the returns on an investment measured over several periods.The rolling returns on an investment are measured over a discrete number of consecutive periods (usually years) starting ...

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A Roth IRA is a type of Individual Retirement Account (IRA) for individuals who fall below certain income thresholds. One of the primary benefits to investing in a Roth IRA is that distribut...

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A round lot is a securities trade for 100 trading units. In stock trading, a round lot is 100 shares. However, inactive stocks generally trade in 10-share lots. Round lots are the standard ...

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A rounding error is a mistake made when rounding a number up or down.   For example, most math books teach students to round numbers 5 through 9 up. For example, the number 10.5693 wo...

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A routing number is a exclusive identification number assigned to banking institutions by the American Bankers Association (ABA).For those banks and banking institutions that qualify as account holder...

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Roy's safety-first rule is a measure of the minimum returns an investor requires from a portfolio. The formula for Roy's safety-first rule is: Roy's Safety-First Rule = (Expected retu...

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A royalty trust is a type of corporation created to act as the owner of the mineral rights to wells, mines and similar properties.  It exists only to pass income generated from the sale of the pr...

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The RSI indicator mirrors and anticipates price patterns in the underlying stock or index chart. The indicator's designer, Welles Wilder, intended for the RSI Indicator to help traders spot chart ...

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The "rule of 72" is a method of estimating how long it will take compounding interest to double an investment.The rule of 72 is a method used in finance to quickly estimate the doubling or hal...

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A run occurs when a flood of depositors withdraw their funds from a bank within a short time frame. It’s important to remember one thing about banks: They don’t keep your money in cash in a vault...

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A runs test is a statistical procedure that can be used to decide if a data set is being generated randomly, or if there is some underlying variable that is driving results.If data points are randomly...

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The Russell 1000 Index is designed to track the performance of most major large-cap companies. Though it is not usually cited by individual investors, it is the third most widely used benchmark by mon...

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The Russell 2000 index measures the performance of the 2,000 smallest companies in the Russell 3000 index. The Frank Russell Company created the index in 1984, and it was one of the first broad benchm...

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Started in 1984, the Russell 3000 Index attempts to capture the return of the overall market. The index can be subdivided into two segments: the Russell 1000 (consisting of the 1000 largest m...

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A Russian option is a type of lookback option which does not have an expiration date.As a lookback option, a Russian option may be exercised according to American or mid-Atlantic settlement rules base...

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