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Accelerated Death Benefit - A
life insurance policy benefit that lets the insured
person use some of the policy's death benefit prior
to death for purposes such as long-term care.
Accrued interest - The interest
due on a bond since the last interest payment was
made. The buyer of the bond pays the market price
plus accrued interest.
Activities of Daily Living (ADLs)
- Everyday functions and activities that
people usually do without help. These include
dressing, eating, bathing, toileting, transferring
and continence. Many insurance policies use the
inability to perform a certain number of ADLs (such
as 2 of 6) to determine eligibility for benefits.
Acquisition - The acquiring of
control of one corporation by another. In
"unfriendly" takeover attempts, the potential buying
company may offer a price well above current market
values, new securities and other inducements to
stockholders. The management of the subject company
might ask for a better price or try to join up with
a third company.
Acute Care - The care provided for
a medical condition from which a patient is expected
to recover and resume a "normal" lifestyle, even
though it may not be the same as before the onset of
the condition. Recovered patients usually do not
require the assistance of another person in
performing their normal activities of daily living.
Medicare covers most acute care for patients age 65
and older.
Adjustable Rate Mortgage (ARM) -
A type of mortgage in which the interest rate paid
on the outstanding balance varies according to a
specific benchmark. The initial interest rate is
normally fixed for a period of time after which it
is reset periodically, often every month. The
interest rate paid by the borrower will be based on
a benchmark plus an additional spread, called an ARM
margin.
An adjustable rate mortgage is also known as a
"variable-rate mortgage" or a "floating-rate
mortgage".
Administrative fees - Charges to cover
record-keeping of the account. They may be flat fees
or a percentage of the account.
Advance Directive for Health Care - Prepared ahead
of time, a health care advance directive is a
written document that says how you want medical
decisions to be made if you lose the ability to make
decisions for yourself. A health care advance
directive may include a Living Will a Durable Power
of Attorney for Health Care or both.
Alternative Minimum Tax (AMT) - The
tax law gives preferential treatment to some kinds
of income and allows special deductions and credits
for some kinds of expenses. People who benefit from
these may have to pay an additional tax called the
alternative minimum tax. It is a separate tax
computation that, in effect, eliminates many
deductions and credits and creates a tax liability
for someone who would otherwise pay little or no
tax. Before mailing their federal income tax return,
all taxpayers are required to compute their tax
liability twice, first using the standard method AND
then using the AMT method. A taxpayer's actual tax
liability will be the higher of the two results. In
recent years, more and more people have found
themselves subject to the AMT.
American Depositary Receipt (ADR) -
a security issued by a U.S. bank in place of the
foreign shares held in trust by that bank, thereby
facilitating the trading of foreign shares in U.S.
markets.
American Stock Exchange (AMEX) -
The second largest stock exchange in the United
States, located in the financial district of New
York City. (Formerly known as the Curb Exchange from
its origin on a Manhattan street.)
Amortization - Accounting for expenses or charges as
applicable rather than as paid. Includes such
practices as depreciation, depletion, write-off of
intangibles, prepaid expenses and deferred charges.
Amortized Loan - A loan with
scheduled periodic payments of both principal and
interest. This is opposed to loans with
interest-only payment features, balloon payment
features and even negatively amortizing payment
features.
Borrowers who choose amortized loans are less likely
to experience "payment shock" than borrowers who
choose loans which are not fully amortized. Payments
on loans that are not initially fully amortized must
at some point become amortized over the remaining
term of the loan in order to repay the outstanding
principal balance. The shorter the remaining term,
the larger the increase required in the periodic
payments to amortize the loan over the remaining
term.
Annual Percentage Rate (APR) - The
annual rate that is charged for borrowing (or made
by investing), expressed as a single percentage
number that represents the actual yearly cost of
funds over the term of a loan. This includes any
fees or additional costs associated with the
transaction.
Annual Percentage Yield (APY) -
What does it Mean? The effective annual rate of
return taking into account the effect of compounding
interest. APY is calculated by:
The resultant percentage number assumes that funds
will remain in the investment vehicle for a full 365
days.
The APY is similar in nature to the annual
percentage rate. Its usefulness lies in its ability
to standardize varying interest-rate agreements into
an annualized percentage number.
For example, suppose you are considering whether to
invest in a one-year zero-coupon bond that pays 6%
upon maturity or a high-yield money market account
that pays 0.5% per month with monthly compounding.
At first glance, the yields appear equal because 12
months multiplied by 0.5% equals 6%. However, when
the effects of compounding are included by
calculating the APY, we find that the second
investment actually yields 6.17%, as 1.005^12-1 =
0.0617.
Annual report - The formal
financial statement issued yearly by a corporation.
The annual report shows assets, liabilities,
revenues, expenses and earnings - how the company
stood at the close of the business year, how it
fared profit-wise during the year, as well as other
information of interest to shareowners.
Annuitant - The person entitled to
receive an annuity.
Annuitize - To begin a series of
periodic payments from an annuity policy or
contract. The payments may be a fixed amount, for a
fixed period of time, or for the life of the
annuitant.
Annuity - A series of payments made
periodically for a specific period of time. The
payment amounts can be variable from
payment-to-payment or fixed amounts. Many insurance
companies sell a wide variety of annuity policies /
contracts with payments that begin immediately upon
purchase of the contract or are deferred until some
time in the future. Some annuity contracts waive
their surrender charges (early withdrawal penalties)
in the event of a lengthy hospital stay, nursing
home confinement, or terminal illness.
There are generally two types of annuities
fixed and
variable:
In a fixed annuity, the
insurance company guarantees that you will earn a
minimum rate of interest during the time that your
account is growing. The insurance company also
guarantees that the periodic payments will be a
guaranteed amount per dollar in your account. These
periodic payments may last for a definite period,
such as 20 years, or an indefinite period, such as
your lifetime or the lifetime of you and your
spouse.
In a variable annuity, by
contrast, you can choose to invest your purchase
payments from among a range of different investment
options, typically mutual funds. The rate of return
on your purchase payments, and the amount of the
periodic payments you will eventually receive, will
vary depending on the performance of the investment
options you have selected.
Arbitrage - A technique employed to
take advantage of differences in price. If, for
example, ABC stock can be bought in New York for $10
a share and sold in London at $10.50, an arbitrageur
may simultaneously purchase ABC stock here and sell
the same amount in London, making a profit of $.50 a
share, less expenses. Arbitrage may also involve the
purchase of rights to subscribe to a security, or
the purchase of a convertible security - and the
sale at or about the same time of the security
obtainable through exercise of the rights or of the
security obtainable through conversion.
Area Agency on Aging (AAA) - A
nationwide network of State and local programs that
help older people plan and care for their life-long
needs. Services include information and referral for
in-home services, counseling, legal services, adult
day care, skilled nursing care/therapy,
transportation, personal care, respite care,
nutrition and meals.
Assets - Everything a corporation
owns or that is due to it: cash, investments, money
due it, materials and inventories, which are called
current assets; buildings and machinery, which are
known as fixed assets; and patents and goodwill,
called intangible assets.
Assignment of Benefits - Health insurance benefits
are usually paid directly to the insured person.
This policy provision allows the insured person (or
his/her legal representative) to make arrangements
to have all or a portion of the benefits paid
directly to the provider or providers of their care.
Assisted Living Facility (ALF) - A
residential living arrangement that provides meals,
housekeeping, transportation, individualized
personal care and health services for people who
require assistance with activities of daily living.
The types and sizes of facilities vary from a small
home to a large apartment-style complex; individual
units range from single rooms to multi-bedroom
apartments. They also vary in the levels of care and
services that can be provided. Assisted living
facilities offer a way to maintain a relatively
independent lifestyle and more privacy for people
who don't need the level of care provided by nursing
homes. In most cases, assisted living residents pay
a regular monthly rent for room and board, plus
additional fees for the services they receive.
Auction market - The system of
trading securities through brokers or agents on an
exchange such as the New York Stock Exchange. Buyers
compete with other buyers while sellers compete with
other sellers for the most advantageous price.
Auditor's report - Often called the
accountant's opinion, it is the statement of the
accounting firm's work and its opinion of the
corporation's financial statements, especially if
they conform to the normal and generally accepted
practices of accountancy.
Averages - Various ways of
measuring the trend of securities prices, one of the
most popular of which is the Dow Jones Industrial
Average of 30 industrial stocks listed on the New
York Stock Exchange. The prices of the 30 stocks are
totaled and then divided.
by a divisor that is intended to compensate for past
stock splits and stock dividends, and that is
changed from time to time. As a result, point
changes in the average have only the vaguest
relationship to dollar-price changes in stocks
included in the average. (See NYSE Composite Index)
Averaging - The technique of buying
a fixed dollar amount of a particular investment on
a regular schedule, regardless of the share price.
More shares are purchased when prices are low, and
fewer shares are bought when prices are high.
Also referred to as a "constant dollar plan".
Eventually, the average cost per share of the
security will become smaller and smaller. Dollar-cost
averaging lessens the risk of investing a large amount in a single
investment at the wrong time.
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