Financial Terminology

Accrue: To accumulate and add up at regular intervals, resulting in increasing values.

Annuity: An investment contract that guarantees the insured beneficiary steady payments for life or a specified time period.

Asset: Anything that has value, monetary worth, or the ability to create wealth.

Asset Allocation: Balancing the proportions between asset classes in an investment portfolio to reduce risk and maximize growth with respect to the investor’s objectives.

Asset Class: A general grouping of investments according to similar money-generating attributes, time duration, risk levels, rules, and operations in the financial market.

Average: Price level of a select group of stocks that has been averaged out to give investors an idea of dominant trends in certain areas of the stock market.

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B

Back-End Load Fee: A commission fee that’s charged when you redeem or sell your mutual fund units.

Bank: A financial institution in the business of primarily accepting and securing cash deposits, providing banking services to account holders, lending money, and offering investment options to clients.

Banknote: A certified official paper (or polymer) money typically worth higher values than coins, originally intended for ease of transport. Also known as a Bill or Note.

Bank of Canada: Canada’s central bank which is responsible for making and implementing monetary policies that affect Canada’s economic stability, managing the government’s funds, and issuing banknotes.

Bartering: Trading goods for other goods.

Basic Necessities, Basic Needs: What we humans need for our survival and well-being.

Bill: See Banknote.

Blue Chip, Blue Chip Corporation: A well-established company that has stable profits; blue chip securities are considered safe, high quality investments.

Board of Directors: Elected members responsible for making strategic decisions and policies for an organization or corporation.

Bond: An investment form of debt issued by a corporation or organization to raise and borrow money, bonds regularly pay lenders (investors) interest until full repayment.

Bond Credit Rating: For bonds, this is a grade rating based on the likelihood of meeting financial obligations; a higher grade means a higher quality bond.

Bondholder: An investor who owns the bond and receives interest payments until the bond debt is repaid.

Bond Issuer: An organization or corporation that issues bonds for the purposes of borrowing funds from investors, offering to pay interest in return.

Bond Yield: The financial return on a bond investment.

Boom: A significant rise in business activity and overall economic growth.

Borrower: Any person or business that is temporarily using an asset (like money) and paying the lender interest for the duration of usage until the loan is returned or paid back.

Broker: An agent or company whose services involve providing clients with a selection of certain products; brokers are paid a commission fee once a client makes a purchase or a sale through them.

Brokerage, Brokerage Firm: A financial institution that provides its clients with a number of securities to choose from, either from its own inventory or from what is available in the markets; it charges commissions to clients for facilitating transactions.

Bubble: The point in an economy when prices, purchasing, and investing quickly rise to exaggerated levels such that the economy will rapidly crash once the spending stops and investors sell their assets to collect profits.

Budget, Budgeting: The difference after subtracting expenses and spending from earnings; an allotted amount of spending; a strategy of creating a surplus of cash by reducing expenditures.

Bullet Strategy: Timing your cash and fixed-income assets so that they all mature at the same time in the future, although start times vary to take advantage of better interest rates.

Business: An enterprise that uses capital to sell products or services to consumers for the purpose of making a profit.

Business Cycle: The increase and decrease of economic activity resulting from the degree of lending, investing, employment, income, spending, inflation, and GDP.

Bust: The aftermath following an economic boom, characterized by a big drop in economic activity.

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C

Caisse Populaire: What a credit union is called in Quebec.

Callable Bond: A bond in which the issuer has the ability to pay back the bond before the maturity date and will therefore no longer pay the investor interest.

Canada Premium Bond, CPB: A low-risk investment that pays interest with a three-year maturity in which one’s principal and interest are guaranteed by the Government of Canada.

Canada Revenue Agency, CRA: The federal administrators of tax laws in Canada; from us they collect taxes which are intended for programs, benefits, services, and infrastructure that support the country.

Canada Savings Bond, CSB: A low-risk investment that pays guaranteed interest with a three-year maturity; CSBs are available through employers offering the Payroll Savings Program through which regular contributions are made from employees’ pay cheques.

Canadian Securities Administrators, CSA: An organization of securities regulators from each province and territory that formed for the purpose of working towards consistent laws, policies, and regulatory enforcement within Canada’s investment industry.

Capital: Anything of financial value (such as money for investments or materials and machinery for a business) that is used to turn a profit.

Capital Gain: Net profit made from selling an asset at a higher price.

Capital Loss: Net loss resulting from selling an asset at a lower price.

Cash: Physical form of money; asset class of short-term investments that pay interest to investors.

Cashable GIC: GIC that offers the ability to withdraw one’s investment before maturity and still receive accrued interest; interest rates are usually lower than non-cashable GIC rates. Cashable GICs are also known as Redeemable GICs.

Cash Investment: A very low-risk short-term investment which offers a low, predictable return in interest payments; an investment that can be readily converted into cash.

Commercial Activity: Any kind of business activity involving the purchasing, selling, and exchanging of goods and services

Commission Fee: The sales charge that goes to an advisor, broker, or firm who assists a client in the purchase or sale of a product.

Commodity: A raw or basic material that can be sold, traded, and used to create products.

Common Shares: Shares of ownership in a corporation that give investors voting rights (with each share equal to a vote) and sometimes dividend payments.

Compound Interest: Interest calculated on an investment that has already increased in value from previously-earned interest – this new interest is added and further increases the investment’s value.

Consumer: Someone who buys goods and services to meet personal needs and wants.

Contraction: The stage in the business cycle in which economic activity slows down with declines in spending, prices, production, and employment.

Contribution: A deposit made by an investor towards his or her government registered savings plan.

Contribution Limit: The annual limit set by the government which is the most that can be contributed to a registered plan or account.

Contribution Room: The maximum amount that you can contribute to your registered plan or account; this includes your current contribution limit plus contribution room amounts accumulated from previous years.

Coupon, Coupon Rate: A bond’s annual interest that is paid to investors. The interest rate is usually a fixed percentage of the bond’s face value.

Credit Card: A plastic card that allows one to conveniently make purchases and payments through short-term access to funds which, when not entirely paid back, charge high interest rates.

Credit Line, Line of Credit: An allowable amount of money available for loan often provided by lending institutions like banks, which when used, charge interest at rates lower than credit card interest.

Credit Risk: The risk of defaulting on payments owed to lenders or of failing to meet financial obligations.

Credit Union: A member-owned financial institution offering typical banking services to members in addition to loans, credit, insurance plans, and investments. In Quebec it is known as Caisse Populaire.

Currency: A country’s own official money.

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D

Day-to-Day Banking: Typical activities of bank account holders which involve making purchases, withdrawals, funds transfers, bill payments, etc.

Debt: Owed money, assets, or services.

Debt Instrument, Debt Security: An investment representing the money owed by the borrower with the promise of repayment plus interest payments to the lender until the date of maturity.

Deduction: Expense in which a portion or the whole amount is subtracted from your income earned in a tax year, thereby reducing how much income gets taxed.

Deduction Limit: Found in the income tax’s Notice of Assessment, the deduction limit informs you of the maximum RRSP contribution amount you may deduct from your income’s total in a given year.

Default: Failure to repay a debt on time or failure to meet a financial obligation.

Defensive Sector: A stable sector that is less prone to economic downswings because it provides necessary goods and services that we can’t live without.

Deferred Sales Charge: A mutual fund commission fee that isn’t charged right away but instead declines incrementally the longer you hold the fund to the point of zero after a certain number of years.

Deflation: The overall falling of prices in the economy.

Demand: Consumers’ desire to buy a product or service.

Denomination: A unit that represents the value of a certain amount of money.

Designation: An official title granted to a professional once industry standards have been achieved such as compulsory courses, exams, and a practicum.

Discount: The price of a bond, T-bill, or any security that is offered at less than its face or par value.

Discount Brokerage: A brokerage firm that offers low commission rates on online securities trades for clients who don’t need full brokerage service.

Discretionary Expense, Discretionary Spending: Spending beyond your basic needs on things you want.

Distribution Reinvestment Plan, DRIP: An option that allows investors to have their fund’s distribution payments reinvested to buy more fund units or shares.

Distributions: Money generated from the assets held in a fund distributed to its investors.

Diversify: Investing across various asset classes to maximize growth and minimize risk.

Dividend: Regular payments made to shareholders that are distributed from a company’s earnings.

Dividend Reinvestment Plan, DRIP: A plan that gives you the option of reinvesting your dividend earnings for more stock shares instead of receiving money payments.

Dividend Tax Credit: The tax credit you are granted when you receive dividend payments from owning shares of a Canadian corporation; this credit significantly lowers what you pay in taxes on dividend income.

Dividend Yield: The dividend’s annual rate of return on your investment based on the price of the stock; the yield will change as the price of the stock fluctuates.

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E

Economy: The goods, services, and resources of a region or country that are produced and distributed for the purposes of consumption and profit.

Emerging Market: A foreign economy experiencing a more recent surge of economic progress and increase in participation among the larger markets – it has its own stock market as well.

Enterprise: A business undertaking of some financial risk to bring products or services to consumers in order to make a profit.

Equities: Asset class of securities that sell shares of ownership in a corporation.

Equity: How much you own of something based on how much you invested.

Escalating Interest Rate: An interest rate that increases periodically for the duration of the investment, designed to encourage you to keep your money invested longer.

Estate: The net total of a person’s assets at the time of death; this normally includes assets such as valuables, property, and investments.

Estate Planning: Strategic planning of the distribution of a person’s assets (valuables, property, investments, etc.) and responsibilities to his or her beneficiaries in the event of illness, accident, or death.

Exchange-Traded FundETF: An investment fund that trades on the stock exchange and is made up of many stocks designed to follow a stock index’s performance.

Expansion: The stage that describes an economy on the rise where lending, investing, employment, consumer spending, and GDP increase.

Extendible BondA bond with the option of lengthening the maturity term, usually by another term.

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F

Face Value: The price that a debt security is issued at; the investor is repaid this amount at maturity. This is also known as Par Value.

Fiat: Official order or declaration.

Finance: Money management through budgeting, borrowing, raising funds, and investing.

Financial Advisor: A professional who is qualified to provide services and advice to clients in the managing of their investments and portfolios.

Financial Asset: Money, or a money-based asset like an investment, which is intended to generate wealth.

Financial Freedom: Being free of debt burdens and having enough wealth to live comfortably according to your goals.

Financial Institution: An institution in the business of banking, lending, and investing; by collecting deposits from clients, the money is lent or invested to generate income and profits.

Financial Planner: A professional who is certified to sell financial products and provide financial planning services to clients.

Financial Planning: A detailed, integrated financial strategy for reaching short and long-term goals in a client’s life by assessing personal details (like salary, debts, dependents, and expenses) and tailoring the plan to suit the client’s needs.

Financial Product: An investment that is created to generate profitable gains.

Financing: Providing funds or capital for personal or business endeavours in return for interest payments or a percentage of future profits.

Fixed-Income Securities: Securities that produce regular fixed payments to the investor in the form of interest or dividends.

Fixed Term: The type of investment contract set for a fixed period of time that results in penalties if broken before the end of the term.

Floating Rate Bond: A bond with a variable rate that follows changes in prevailing interest rates, unlike bonds with fixed rates.

Front-End Load Fee: The commission fee that you’re charged upfront when you buy a mutual fund.

Fund Manager: A financial professional (or team) who selects and manages the assets in a portfolio of an investment fund to ensure that the performance of the portfolio is in line with the fund’s objectives.

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G

Gross Domestic Product, GDP: Measured value of a country’s total production of goods and services generated over a quarter or a year.

Guaranteed Investment Certificate, GIC: A low-risk, short-term investment that guarantees at maturity the return of one’s principal and the interest earned over the term.

H

High Net Worth Client: A wealthy client owning a lot in assets, typically a millionaire.

Home Buyers’ Plan: A plan that allows you to use up to $25,000 of your own RRSP money to pay for your first home.

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I

Income: Money made from various ways such as job earnings, business, and investments.

Income Taxes: Annual federal and provincial taxes you must pay on all your combined income; the amount is reduced by allowable deductions and tax credits.

Income Trust: A type of investment fund in which its assets are managed and owned by an investment company or a trust; investors buy shares or units and receive income generated by the trust’s assets.

Industry: Businesses and companies producing similar products or services.

Inflation: The overall rise in prices in the economy.

Institutional Client, Institutional Investor: A “big money” client like a corporation or investment fund investing large sums of money in assets and securities.

Insurance: A contract you purchase or a plan you pay into that entitles the beneficiaries to financial coverage on specific expenses or if certain events of hardship occur.

Insurance Company: A company that sells various types of insurance but is also a financial institution in that it can offer investors registered accounts and financial products, such as GICs, mutual funds, and annuities.

Interest, Interest Rate: When money is borrowed, it’s the additional percentage that must be paid to the lender for the duration of the loan.

Intermediary: An institution that makes available to clients the various investments and products available in the market by basically matching buyers and sellers, lenders and borrowers.

Inventory: A total count of supply or products in one’s business.

Investment: Dedicating money towards something that offers a potential return, such as real estate, stocks, bonds, etc., in order to make a financial gain in the future.

Investment Account: An account used for holding and tracking your various investments (not intended for day-to-day banking transactions).

Investment Advisor: A professional who is licensed to sell various securities and financial products to clients and also provide services and advice in the managing of their portfolios.

Investment Company: A company that offers different financial products made of various assets that are professionally managed, such as mutual funds and ETFs; these products are usually obtained through your financial institution.

Investment Fund: A company or trust consisting of fund managers, analysts, and other experts who use money from investors to invest in a variety of securities and assets to generate profits; you may make an investment by buying shares or units.

Investment Income: Earnings that come from investments generally in the form of interest, dividends, and capital gains.

Investor: Anyone who puts his or her money towards something that shows the potential of generating wealth from profit or income.

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L

Ladder Strategy: Having fixed-income assets with progressively later maturity dates so that not all your investments carry the risks that come with holding a security for a very long period.

Lifelong Learning Plan: A plan that allows you to use up to $20,000 of your own RRSP money to pay for higher education or training for you or your spouse.

Liquid, Liquidity: The ease and speed of cashing out an investment or asset.

Load Fee: The mutual fund commission fee you pay either at the time of purchase or when you sell your shares; the load fee is usually a percentage of what you’re investing.

Loan: Borrowed money (or asset), usually with interest charged until repayment.

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M

Management Expense Ratio, MER: A fund’s annual expenses (consisting of the management fee and operating fees) which work out to be a percentage of the fund’s assets; these fees are not charged to investors directly, but to the fund.

Management Fees: The fees paid to those managing the assets in an investment fund.

Market, Marketplace: Where people meet to buy, sell, and trade goods, services, commodities, or securities.

Maturity: The point in time when an investment reaches the end of its term and the obligation of earned interest or gains is paid along with the returned principal.

Mint: Producing coins out of metals to be circulated as official currency.

Money: An officially recognized item of exchange used for the purpose of purchasing items or services.

Money Market: A market where short-term debt securities are traded in larger block amounts between large institutions (governments, corporations, or financial institutions) looking to borrow and lend in the short-term.

Money Market Security: Short-term debt security that trades in the money market such as a T-bill.

Mortgage Loan: Money borrowed from a lender to purchase a real estate property; loan repayments involve paying down both the debt (the principal) plus interest; the property itself is often the collateral.

Mutual Fund: A fund or trust that pools investors’ money to buy and manage a number of different assets for the purposes of generating income and capital gains.

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N

Net Asset Value Per Share, NAVPS: The cost of each share or unit of an investment fund based on the net value of the fund’s assets divided by the number of the fund’s shares or units.

No Load: A mutual fund that doesn’t charge you commissions for buying or selling your mutual fund units.

Non-Callable Bond: A bond that does not allow the issuer to pay off the bond before the maturity date.

Non-Cashable GIC, Non-Redeemable GIC: A GIC with a fixed term that guarantees a set interest payment without the option of redeeming your money before the maturity.

Non-Registered Account: An investment account that is not in a registered plan with the government. This type of account offers no tax advantage but is ideal for tax-favoured securities such as stocks.

Note: See Banknote.

Notice of Assessment: Your statement from Canada Revenue Agency that shows the taxation of your annual income.

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P

Par Value: See Face Value.

Peak: The stage in the economy when consumer spending, investing, inflation, and GDP reach their highest levels before it all begins to slow down, ultimately leading to a contraction in the economy.

Pension Adjustment: The subtraction of employer retirement plan contribution amounts from your RRSP contribution room – not everyone is enrolled in a retirement plan, so it’s only subtracted if you are.

Pension Fund, Pension Plan: Retirement fund where regular contributions come from a portion of employees’ earnings and from the employer; these contributions are used to buy and sell securities managed by a fund manager.

Portfolio: A number of different investments and assets that belong to an investor, fund, or institution.

Preferred Shares, Preferreds: A type of stock share that offers fixed dividend payments in place of voting privileges; could be considered a fixed-income investment because of the regular payments.

Premium: The price of a bond that exceeds its face or par value.

Price-to-Earnings Ratio, P/E ratio: A ratio that tells you the value of a stock’s share price relative to what the company earns over a year.

Principal: The original amount of money put into an investment before profits.

Producer: One who makes or supplies a product, a good, or a service for consumers with the intent of making a profit.

Profit: The money you gain after you take away the costs and expenses to start and run a business or to make an investment.

Publicly Traded Company: A company that issues shares of ownership to be bought and sold among the public in the stock exchanges.

Purchasing Power: The ability to purchase goods and pay for services using money or credit; this ability is decreased when your currency is weak or inflation is high.

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Q

Qualified Investment: A type of investment permitted in registered accounts.

R

Real Return Bond: A government-issued bond that will repay you a higher principal at maturity due to a rise in inflation.

Recession: Stage in the business cycle in which there is a slowing down of spending, business activity, production, and employment in the economy; a recession is recognized when the GDP has been consistently negative for at least half a year.

Recovery: After the economy has been in a recession for a period, it’s at this stage that business activity slowly begins to pick up again.

Redeemable GIC: See Cashable GIC.

Registered Account: An account registered with the federal government which holds and tracks contributions and investments, and offers benefits in taxation on your investments.

Registered Disability Savings Plan, RDSP: A registered investment account in which your contributions are supplemented by government grants to support a beneficiary with a disability; taxation on investment income and grants is deferred until withdrawals are made from the plan.

Registered Education Savings Plan, RESP: Registered investment account in which your contributions are supplemented by government grants to fund a beneficiary’s post-secondary education; taxation on investment income and grants is deferred until withdrawals are made from the plan.

Registered Retirement Income Fund, RRIF: Registered account into which RRSP funds are transferred and require an annual minimum withdrawal; new contributions may not be made to this plan, but income and investment earnings are tax-deferred until withdrawn.

Registered Retirement Savings Plan, RRSP: A registered account which allows an investor to defer taxation – on personal income for amounts contributed to the plan and on the investment earnings within the plan- until withdrawals are made from the account.

Retail Client, Retail Investor: An individual investor using his or her own money to make investments.

Retractable Bond: A bond with an option to shorten the maturity term and redeem it at its face value.

Return on Investment, ROI: A percentage that measures what you gain in return for what you invested, a higher percentage means a better return. To calculate your basic or simple return, divide the net profit by the principal amount invested.

Risk: The factor of uncertainty in the outcome of an investment which could result in financial loss.

Risk Tolerance: The degree at which you’re able to handle loss or a different outcome, risk tolerance is usually rated at low, medium, or high.

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S

Savings Deposit: A deposit of money into a savings account or a registered account that offers you interest. 

Scarce, Scarcity: The limit to the amount of supply of goods in the market or resources available in the economy.

Sector: A section of the economy that consists of businesses, companies, and industries that produce similar goods and services.

Securities Commission: Regulators who administer and enforce rules and policies over capital market activities and sales of investments in their own province or country.

Securities Firm: See Brokerage Firm.

Security: A general term referring to a financial asset such as a stock or a bond that certifies ownership to the investor; a security is an investment that can usually be traded in the financial markets.

Service Charge: The fee you pay a financial institution or professional for their account services or assistance.

Share: Partial ownership of a company.

Shareholder: An investor who owns shares of a company’s stock and therefore owns part of the company.

Simple Interest: Interest rate calculated on the principal amount invested or loaned.

Slump: The slowing down of business activity, production, and employment in the economy.

Spousal RRSP: RRSP feature which allows the higher-income earning spouse to contribute to both his or her own RRSP and the lower-income earning spouse’s RRSP for the purposes of saving for both retirements and maximizing tax deductions on personal income.

Stock: A security investment that gives you ownership in a company when you buy its shares.

Stock Exchange, Stock Market Exchange: A marketplace where stocks are bought and sold; nowadays, stock market exchange activities occur electronically online.

Stock Market Index: A selected group of major stocks across different sectors – performances of these stocks are measured to give investors an idea of the dominant trend in the stock market.

Strip Bond: A bond that offers no coupon payments but is offered at a discounted price and pays the investor the full face value at maturity. This is very much like a T-bill, and is also known as a Zero-Coupon Bond.

Supply: The number of products or services that is made available for consumption.

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T

Tax: The percentage we must all pay out of our income, profits, property, goods, and services to the government.

Taxable Income: Your total income minus all allowable deductions and losses – your tax rate is determined by this amount. 

Tax Bracket: Income range that is taxed at a specified rate; higher bracket ranges have higher tax rates.

Tax Credit: What the government credits you usually after you determine what you owe in taxes; generally, tax credits are not based on your income, but on various other personal factors and expenses.

Tax Deferral: Strategy of paying taxes at a later time when income is expected to be lower.

Tax-Free Savings Account, TFSA: A registered account in which all the gains of your investments and withdrawals will not be charged any taxes as long as you invest within your allowable amounts.

Tax Rate: The percentage that you’re taxed on your taxable income.

Tax Return: After filing taxes, your tax return is what you get back if you paid more than you owed after deductions and credits are applied.

Tax Treaty:  Agreement between your country and another country that recognizes when you pay taxes on income to the other country – this is so you don’t have to pay tax twice on the same income.

Tax Year: For individuals, the tax year starts January 1 and ends December 31 of the same year; the deadline to file taxes is usually the end of April in the following year.

Term Deposit: A low-risk cash investment that pays you interest and returns your principal investment at maturity; terms are short, typically up to one year.

Ticker Symbol: The abbreviated letter symbol(s) assigned to a stock that trades on a stock exchange.

Time Horizon: The amount of time needed to reach a (financial) goal.

Trading Expense RatioTER: A fund’s annual trading costs which work out to be a percentage of the fund’s assets; these fees are not charged to investors directly, but to the fund.

Treasury Bill, T-bill: A short-term government debt security which you purchase at a discount in order to receive the entire face value amount at maturity.

Trough: The stage of an economy when business activity is at the end of its lowest and slowest point. From here, the economy begins to recover.

Trust Company: One of the main types of financial institutions that offers similar investor services and financial options as banks and brokerages, but with the added ability to buy, sell, and manage assets on the client’s behalf.

Trustee: An individual or company that is entrusted or authorized to handle a client’s assets as instructed by the client.

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U, V, W

Unemployment: State of the jobless workforce that is actively looking for work but not able to find any jobs.

Variable Interest Rate: Interest rate that changes following shifts in the prevailing rates; this is a good investment option if the current rate is low and will likely go up.

Wealth: Excess in money and assets extending beyond basic needs.

Wealth Management: Financial service, generally for wealthy clients, that involves a more active approach to professionally managing assets with the objectives of minimizing taxation and maximizing returns.

Withholding Tax: Tax on your income or investments that is withheld by your employer or financial institution and paid to the government.

Y, Z

Yield: The financial return on the income generated by an investment.

Yield to Maturity, YTM: The compounded rate of return on a bond investment if held until maturity.

Zero-Coupon Bond: See Strip Bond.

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