Investment Terms: The Letter "B"

Investing

Investment Terms: The Letter "B"

31st August 2007

This is a continuation of a series of posts to feature on MoneyBusiness. These will focus on giving definitions of financial and investment terms from investing to credit to banking. Today's terms are taken mostly from GreekShares.com, Arizona State Retirement System. However other terms are from speaking to financial experts. Happy learning!

Investing

BACK OFFICE - Brokerage house clerical operations that support, but do not include, the trading of stocks and other securities. Includes all written confirmation and settlement of trades, record keeping and regulatory compliance.

BANKER'S ACCEPTANCE - A short-term credit investment created by a non-financial firm and guaranteed by a bank as to payment. Acceptances are traded at discounts from face value in the secondary market. These instruments have been a popular investment for money market funds.

BASIS - The price an investor pays for a security plus any out-of-pocket expenses. It is used to determine capital gains or losses for tax purposes when the stock is sold.

BASIS POINTS - Refers to yield on bonds. Each percentage point of yield in bonds equals 100 basis points. If a bond yield changes from 7.25 % to 7.39 %, that's a rise of 14 basis points.

BEAR - An option contract that can be exercised at any time between the date of purchase and the expiration date. Most exchange-traded options are American style.

BEAR MARKET - A market which is on a consistent downward trend.

BEAR RAID - A situation in which large traders sell positions with the intention of driving prices down.

BENCHMARK - An unmanaged group of securities whose overall performance is used as a standard to measure investment performance.

BETA (STOCKS) - Measure of a stock's risk in relation to the market. 0.7 means a stock price is likely to move up or down 70 % of the market change; 1.3 means the stock is likely to move up or down 30 % more than the market.

BETA EQUATION (STOCKS) - The beta of a stock is determined as follows: [(n) (sum of (xy)) ]-[(sum of x) (sum of y)] [(n) (sum of (xx)) ]-[(sum of x) (sum of x)] where: n = # of observations (24-60 months) x = rate of return for the S&P 500 Index y = rate of return for the stock.

BETA (MUTUAL FUNDS) - The measure of a fund's risk in relation to the market. 0.7 means the fund's total return is likely to move up or down 70 % of the market change; 1.3 means total return is likely to move up or down 30 % more than the market.

BETA EQUATION (MUTUAL FUNDS) - The beta of a fund is determined as follows: [(n) (sum of (xy)) ]-[ (sum of x) (sum of y)] [(n) (sum of (xx))]-[ (sum of x) (sum of x)] where: n = # of observations (36 months) x = rate of return for the S&P 500 Index y = rate of return for the fund.

BID-ASK SPREAD - The difference between what a buyer is willing to bid (pay) for a security and the seller's ask (offer) price.

BLOW-OFF TOP - An option is at-the-money if the strike price of the option is equal to the market price of the underlying security. For example, if xyz stock is trading at 54, then the xyz 54 option is at-the-money.

BLUE CHIP STOCKS - Common stock of well known companies with a history of growth and dividend payments.

BREAKOUT - A rise in a security's price above a resistance level (commonly its previous high price) or drop below a level of support (commonly the former lowest price.) A breakout is taken to signify a continuing move in the same direction. Can be used by technical analysts as a buy or sell indication.

BROKER/BROKER-DEALER - An individual or firm that buys or sells mutual funds or other securities for the public.

BULL - An investor who thinks the market will rise.

BULL MARKET - A market which is on a consistent upward trend.

BUY-AND-HOLD - A strategy in which the investor ignores short-term market fluctuations and holds on to his/her investments for long periods of time.

BUYOUT - Purchase of a controlling interest (or percent of shares) of a company's stock. A leveraged buyout is done with borrowed money.

"If you want quick and effective results you must put the money in." - Edward Bullard

Comments (8):

Frank Says: Finally it makes sense! I've always heard people talk about bears and bulls and I wondered what these animals had to do with stock markets | 08.31.2007 |

Martin Says: Since I took a keen interest in following some stocks I've heard these terms a few I know but thanks for the others that I didn't! | 08.31.2007 |

Leo Says: Most of the B terms seem to be commonly used because I've heard them being mentioned by financial people before | 08.31.2007 |

Nobi Says: I finally know what a bear and bull are thanks | 08.31.2007 |

Kay Says: This is getting interesting I see some terms I've heard often ignorance is not bliss | 08.31.2007 |

Xenobia Says: Just started looking into investing in stocks and this sure helps | 08.31.2007 |

Esther Says: This is helpful stuff and I look forward to learning more from your blog | 08.31.2007 |

Vanzo Says: This is some good stuff thanks Kev | 08.31.2007 |

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Investment Terms: The Letter "B"

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