Financial Glossary
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P
- A Nasdaq stock symbol specifying that it is the company's first class of preferred shares.
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P To P (Peer To Peer) or (Path To Profitability)
- P to P can mean one of two things:
1. Peer to peer allows internet users to transfer files directly, rather than through the use of a website or directory. File transfers are done directly from the users' computers.
2. An abbreviation of "path to profitability". This refers to the roadmap a startup company follows in order to propel its operations from its current state of losing money to becoming profitable.
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P-Value
- The level of marginal significance within a statistical hypothesis test, representing the probability of the occurrence of a given event. The p-value is used as an alternative to rejection points to provide the smallest level of significance at which the null hypothesis would be rejected. The smaller the p-value, the stronger the evidence is in favor of the alternative hypothesis.
P-values are calculated using p-value tables, or spreadsheet/statistical software.
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P/E 10 Ratio
- The price-to-earnings (P/E) ratio is the valuation ratio of a company's market value per share divided by the company's earnings per share. A P/E ratio of 10 means that the company's stock price is trading at 10 times the company's earnings per share.
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P/E 30 Ratio
- The price-to-earnings (P/E) ratio is the valuation ratio of a company's market value per share divided by a company's earnings per share (EPS). A P/E ratio of 30 means that a company's stock price is trading at 30 times the company's earnings per share.
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PAB
- In currencies, this is the abbreviation for the Panama Balboa.
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Pac Man
- A form of defense used in a hostile takeover situation. The target firm turns around and tries to take over the company that has made the hostile bid.
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Pac-Man Defense
- A defensive tactic used by a targeted firm in a hostile takeover situation. In a Pac-Man defense, the target firm turns around and tries to acquire the other company that has made the hostile takeover attempt. This term has been accredited to Bruce Wasserstein, chairman of Wasserstein & Co.
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Pacific Exchange - PCX
- An exchange network that coordinates the trading of stock options between both institutional and individual investors.
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Package Deal
- An order that contains a number of exchange or deposit items that must be completed simultaneously, or not at all. Package deals allow traders to ensure specific prices or times to maturity for multiple assets.
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Paid In Capital
- The amount of capital "paid in" by investors during common or preferred stock issuances, including the par value of the shares themselves. Paid in capital represents the funds raised by the business from equity, and not from ongoing operations.
Paid in capital is a company balance sheet entry listed under stockholder's equity, often shown alongside the balance sheet entry for additional paid-in capital. It may also be referred to as "contributed capital".
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Paid-Up
- The state of a settlement when all payment obligations for a security have been completed in a customer account. When an individual has paid up, he or she has paid for the security in full.
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Paid-Up Capital
- The total amount of shareholder capital that has been paid in full by shareholders.
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Painting The Tape
- An illegal action by a group of market manipulators buying and/or selling a security among themselves to create artificial trading activity, which, when reported on the ticker tape, lures in unsuspecting investors as they perceive an unusual volume.
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Paired Shares
- Stock of two companies under the same management that is sold as one unit and usually appears on one certificate.
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Pairing Off
- An illegal practice of a brokerage firm offsetting short and long positions between house accounts by collecting cash payments without physically delivering the securities.
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Pairoff
- 1. A purchase of securities to offset a previously transacted sale of the same security.
2. A transaction in securities markets where off-setting buy and sell trades are settled in cash, based on the difference in the prices between the off-setting trades. No securities trade hands; instead the settlement difference between the trades is calculated, and a money wire is sent to the appropriate party.
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Pairs Trade
- The strategy of matching a long position with a short position in two stocks of the same sector. This creates a hedge against the sector and the overall market that the two stocks are in. The hedge created is essentially a bet that you are placing on the two stocks; the stock you are long in versus the stock you are short in.
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Pale Recession
- A phrase used in May 2008 by former Federal Reserve Board Chairman Alan Greenspan to describe an economic environment in which recession has not yet hit all the areas of the economy. In particular, Greenspan was speaking of the U.S. employment numbers at the time, which had not yet seen as significant of a decline as would be expected in a full recessionary environment, which is generally marked by a broad decline in economic activity across the economy.
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Palisades Water Index
- A stock market index that gauges the performance of global water industry companies. These companies encompass such subsectors as water utilities, pump and filter manufacturers, and irrigation equipment. The index was created in order to capitalize on the growing public awareness of water provision and treatment.
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Palladium
- An element commonly used in jewelry, electronics, and the purification of hydrogen.
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Panel Bank
- The name given to the group of banks contributing to the EURIBOR. This group is made up of the largest participants within the Euro money market.
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Panic Buying
- High volume buying brought about by sharp price increases.
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Panic Selling
- Wide-scale selling of an investment, causing a sharp decline in price. In most instances of panic selling, investors just want to get out of the investment, with little regard for the price at which they sell.
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Paper Dealer
- A firm that specializes in buying commercial paper from companies and then selling/marketing it to investors.
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Paper Millionaire
- An individual who has achieved a high net worth as a result of the large total market value of the assets he or she owns. This phenomenon usually occurs when investors buy marketable securities that are later bid up to much higher prices on the open market. While this creates large amounts of "paper profit", the paper millionaire's riches usually aren't safe until these holdings are liquidated.
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Paper Money
- A country's official, paper currency that is circulated for transaction-related purposes. The printing of paper money is typically regulated by a country's central bank/treasury in order to keep the flow of money in line with monetary policy. Paper money tends to be updated with new versions that contain security features that seek to make it more difficult for counterfeiters to create illegal copies.
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Paper Profit (Paper Loss)
- Unrealized capital gain (or capital loss) in an investment. It is calculated by comparing the market price of a security to the original purchase price. Gains or losses only become realized when the security is sold.
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Paper Trade
- Simulated trading that investors use to practice mimicking trades (buys and sells) without actually entering into any monetary transactions.
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Par
- 1. The face value of a bond. Generally $1,000 for corporate issues, with higher denominations such as $10,000 for many government issues.
2. A dollar amount assigned to a security when first issued.
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Par Value
- 1. The face value of a bond.
2. A dollar amount that is assigned to a security when representing the value contributed for each share in cash or goods.
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Par Yield Curve
- A graph of the yields on hypothetical Treasury securities with prices at par. On the par yield curve, the coupon rate will equal the yield-to-maturity of the security, which is why the Treasury bond will trade at par.
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Parabolic Indicator
- A technical analysis strategy that uses a trailing stop and reverse method called "SAR," or stop-and-reversal, to determine good exit and entry points.
Also known as Parabolic Stop And Reverse (PSAR)
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Parallel Loan
- A type of foreign exchange loan agreement that was a precursor to currency swaps. A parallel loan involves two parent companies taking loans from their respective national financial institutions and then lending the resulting funds to the other company's subsidiary.
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Paraplanning
- A relatively new position within the financial planning industry that involves the performance of the administrative duties of a financial planner. This function was created to allow financial planners to focus on the sell-side by working more closely with customers to identify their investing needs.
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Parent Company
- A company that controls other companies by owning an influential amount of voting stock.
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Pareto Analysis
- A technique used for decision making based on the Pareto Principle, known as the 80/20 rule. It is a decision-making technique that statistically separates a limited number of input factors as having the greatest impact on an outcome, either desirable or undesirable. Pareto analysis is based on the idea that 80% of a project's benefit can be achieved by doing 20% of the work or conversely 80% of problems are traced to 20% of the causes.
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Pareto Improvement
- In neoclassical economics, an action done in an economy that harms no one and helps at least one person. The theory suggests that Pareto improvements will keep adding to the economy until it achieves a Pareto equilibrium, where no more Pareto improvements can be made.
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Pareto Principle
- A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The principle states that, for many phenomena, 20% of invested input is responsible for 80% of the results obtained. Put another way, 80% of consequences stem from 20% of the causes. Also referred to as the "Pareto rule" or the "80/20 rule".
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Pari-passu
- Two securities or obligations having equal rights to payment.
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Paris Club
- A monthly meeting in Paris attended by creditors of 19 countries to discuss debt issues. Among other things, the Paris Club addresses the issue of coordinated debt relief for developing countries that cannot service their debt.
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Paris Hilton Stock Index
- A stock index comprised of companies associated with the socialite Paris Hilton. Some investors conceive her influence on the consumer spending habits of her fans is material enough to give these companies a competitive advantage.
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Paris Stock Exchange (PAR) .PA
- Now known as the NYSE Euronext (NYX), the Paris Stock Exchange trades both equities and derivatives and posts the CAC 40 Index. This index is made up of French companies, although nearly half of these are owned by foreign entities. NYX seeks to offer the most modern and advanced trading platform and services available to traders.
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Parity
- 1. In general, a situation of equality. Parity can occur in many different contexts, but it always means that two things are equal.
2. The official value.
3. In an exchange market, when all brokers bidding for the same security have equal standing due to identical bids.
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Parity Bond
- Two or more bond issues with equal rights to bond payments.
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Parity Price
- The term "parity" refers to equality. Thus, parity price is a price for an asset that is directly linked to another price. Examples of parity price are:
1. Convertibles - the price at which a convertible security equals the value of the underlying stock.
2. Options - when an option is trading at its intrinsic value ("trading at parity").
3. International parity - official rates for a currency in terms of other pegged currencies, typically the U.S. dollar.
4. Commodities - a commodity's price dependent on a composite of prices during a period of time, usually the most recent 10-year period.
5. Listed parity - situation when all parties involved are of equal standing and priority.
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Parking
- A form of kiting shares that a brokerage commits by moving long positions in unrelated accounts to cover short positions that are improperly settled according to SEC regulations.
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Parking Violation
- The illegal practice of an acquiring company concealing ownership of the target company by holding stock under a related third party before attempting corporate takeover.
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Parsonage Allowance
- An allowance designated by a church or other organization for its church professionals (clergy) for the expenses of providing and maintaining a home.
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Partial Redemption
- An investment-transaction classification that refers to the withdrawal of a portion of a security's value by the owner. Rather than withdrawing the entire amount of his or her security's value from the account, an investor may prefer to keep a portion of the value invested in the asset while still obtaining some cash.
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Partial Release
- A mortgage provision allowing some of the pledged collateral to be released from the mortgage contract if certain conditions are met.
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Partially Convertible Debenture - PCD
- A type of convertible debenture, part of which will be redeemed by the issuing company after a specified period of time and part of which is convertible into equity or preference shares at the end of the specified period. The ratio of conversion for the partially convertible debenture is decided by the issuer when the debenture is issued.
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Participating Policy
- An insurance contract that pays dividends to the policy holder. Dividends are generated from the profits of the insurance company that sold the policy and are typically paid out on an annual basis over the life of the policy. Most policies also include a final or terminal payment that is paid out to the holder when the contract matures. Some participating policies may include a guaranteed dividend amount, which is determined at the onset of the policy.
Also referred to as a "with-profits policy".
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Participating Preferred Stock
- A type of preferred stock that gives the holder the right to receive dividends equal to the normally specified rate that preferred dividends receive as well as an additional dividend based on some predetermined condition.
The additional dividend paid to preferred shareholders is commonly structured to be paid only if the amount of dividends that common shareholders receive exceeds a specified per-share amount.
Furthermore, in the event of liquidation, participating preferred shareholders can also have the right to receive the stock's purchasing price back as well as a pro-rata share of any remaining proceeds that the common shareholders receive.
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Participation Rate
- A measure of the participating portion of an economy's labor force.
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Participatory Notes
- Financial instruments used by investors or hedge funds that are not registered with the Securities and Exchange Board of India to invest in Indian securities. Indian-based brokerages buy India-based securities and then issue participatory notes to foreign investors. Any dividends or capital gains collected from the underlying securities go back to the investors.
Also referred to as "P-Notes"
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Partnership
- A business organization in which two or more individuals manage and operate the business. Both owners are equally and personally liable for the debts from the business.
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Pass-Through Certificate
- Fixed-income securities that represent an undivided interest in a pool of federally insured mortgages put together by the Government National Mortgage Association (Ginnie Mae).
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Pass-Through Rate
- The rate on a securitized asset pool - such as a mortgage-backed security (MBS) - that is "passed-through" to investors once management fees and guarantee fees have been paid to the securitizing corporation. The pass-through rate (also known as the coupon rate for the MBS) will be lower than the interest rate on the individual securities within the offering.
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Pass-Through Security
- A pool of fixed-income securities backed by a package of assets. A servicing intermediary collects the monthly payments from issuers, and, after deducting a fee, remits or passes them through to the holders of the pass-through security.
Also known as a "pass-through certificate" or "pay-through security."
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Passive Activity
- An activity from which you have the potential to profit but in which you do not physically participate.
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Passive Activity Loss Rules
- A set of rules that prohibits using passive losses to offset earned or ordinary income. Passive activity loss rules prevent investors from using losses incurred from income-producing activities in which they are not materially involved.
Being materially involved with earned or ordinary income-producing activities means the income is active income and may not be reduced by passive losses. Passive losses can be used only to offset passive income.
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Passive Foreign Investment Company - PFIC
- A foreign-based corporation that has one of the following attributes:
1. At least 75% of the corporation's income is considered "passive", which is based on investments rather than standard operating business.
2. At least 50% of the company's assets are investments that produce interest, dividends and/or capital gains
PFICs include foreign-based mutual funds, partnerships and other pooled investment vehicles that have at least one U.S. shareholder. Most investors in PFICs must pay income tax on all distributions and appreciated share values, regardless of whether capital gains tax rates would normally apply.
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Passive Income
- Earnings an individual derives from a rental property, limited partnership or other enterprise in which he or she is not actively involved. As with non-passive income, passive income is usually taxable; however it is often treated differently by the Internal Revenue Service (IRS).
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Passive Investing
- An investment strategy involving limited ongoing buying and selling actions. Passive investors will purchase investments with the intention of long-term appreciation and limited maintenance.
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Passive Loss
- A loss incurred through a rental property, limited partnership, or other enterprise in which the individual is not actively involved.
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Passive Management
- A style of management associated with mutual and exchange-traded funds (ETF) where a fund's portfolio mirrors a market index. Passive management is the opposite of active management in which a fund's manager(s) attempt to beat the market with various investing strategies and buying/selling decisions of a portfolio's securities.
Also known as "passive strategy," "passive investing" or "index investing."
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Past Due
- A loan payment that has not been made as of its due date. A borrower who is past due may be subject to late fees, unless the borrower is still within a grace period. Failure to repay a loan on time could have negative implications for the borrower's credit status or cause the loan terms to be permanently adjusted.
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Past Due Balance Method
- A finance/accounting method that bases costs (and interest) on the amounts owing that are past due.
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Past Service
- Service to an employer that is recognized for the defined benefit pension plan purposes, but either occurred before the employee was a member in the plan, or before the plans inception. Employees have the option to purchase past service, by cash or by qualified retirement plan roll-over, to increase their years of service in the calculation of their retirement pension.
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Patent
- A government license that gives the holder exclusive rights to a process, design or new invention for a designated period of time.
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Patent Reexamination
- A process conducted by the U.S. Patent and Trademark Office (USPTO) on a patent that already has been issued in order to verify the claims and scope of the patent. A patent reexamination is usually brought about by the original patent holder when that party feels another party has produced a product or service that infringes on its patent. Both parties are given the opportunity to state their cases in writing, and then the USPTO will render its judgment. The reexamination process originated as a cheaper and faster way to settle patent disputes rather than through litigation.
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Patent Share
- The percentage share of a universe of patents owned or created by one subset of that universe. This term usually applies to a comparative share between nations. Patent share has been subdivided not only across nations, but within industry groups and even in companies relative to each other. Patent share is becoming increasingly important to competitive advantage as the applicability of patents extends into information processes, computer software, chemical formulas and other intangibles.
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Patent Troll
- A derogatory term used to describe people or companies that misuse patents as a business strategy. A patent troll obtains the patents being sold at auctions by bankrupt companies attempting to liquidate their assets, or by doing just enough research to prove they had the idea first. They can then launch lawsuits against infringing companies, or simply hold the patent without planning to practise the idea in an attempt to keep other companies productivity at a standstill.
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Path Dependency
- An idea that tries to explain the continued use of a product or practice based on historical preference or use. This holds true even if newer, more efficient products or practices are available due to the previous commitment made. Path dependency occurs because it is often easier or more cost effective to simply continue along an already set path than to create an entirely new one.
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Path Dependent Option
- An exotic option that is valued according to pre-determined price requirements for its underlying asset or commodity.
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Pathfinder Prospectus
- A pre-prospectus statement of financial condition that is sent to a limited group of potential underwriters and institutional investors prior to a securities or IPO filing. The goal of a pathfinder prospectus is to create demand and eventually set the price for the offering, as well as to clear up any inconsistencies in the company's published financial statements.
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Patronage Dividend
- A dividend or distribution that a co-operative pays to its members or investors. Patronage dividends are given based on a proportion of profit made by the business. Once this amount is figured out the dividend is calculated according to how much each member has used the co-op's services. Tax rules view these profits essentially as an overcharge, which can be returned to patrons and deducted from the co-op's taxable income.
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Pattern
- In technical analysis, the distinctive formation created by the movement of security prices on a chart. It is identified by a line connecting common price points (closing prices, highs, lows) over a period of time. Chartists try to identify patterns to try to anticipate the future price direction.
Also known as "trading pattern".
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Pattern Day Trader
- An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.
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Pay Czar
- The nickname given to "Special Master for Compensation" Kenneth Feinberg. The term "pay czar" was applied to Feinberg following his appointment by the U.S. Treasury Department to monitor compensation awards to executives of the firms that accepted U.S. TARP funds during the 2008-2009 financial crisis.
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Pay Czar Clause
- A buzz word describing a clause found in financial institutions' employment contracts that would subject compensation terms to the U.S. government's approval. These clauses would allow the financial institution to offer attractive bonus plans to employees, but also provide recourse in the event that the government prevents the payout from happening, either through regulations or direct intervention.
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Pay Yourself First
- A phrase commonly used in personal finance and retirement planning literature that means to automatically route your specified savings contribution from each paycheck at the time it is received.
Because the savings contributions are automatically routed from each paycheck to your investment account, this process is said to be "paying yourself first", or before you begin paying your monthly living expenses and making discretionary purchases.
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Pay/Collect
- An abbreviated reference to the payment or collection of funds (after futures positions have been marked to market) between clearing members and their respective clearing houses.
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Payable On Death - POD
- An arrangement between a bank or credit union and a client that designates beneficiaries to receive all the client's assets. The immediate transfer of assets is triggered by the death of the client.
Also referred to as a "totten trust."
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Payback Period
- The length of time required to recover the cost of an investment.
Calculated as:
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Paycation
- Taking a vacation from one's main job and using that vacation time to make extra pay at a second job. A paycation can help make ends meet in tough economic times. The term gained popularity during the financial crisis of 2008-2009 when many people took paycations to supplement their incomes.
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Paydown
- A payment made towards an outstanding loan balance.
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Paydown Factor
- The portion of cash subtracted each month from the principal of a mortgage security divided by the original principal of the security.
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Payee
- A party who receives payment.
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Payer
- A person who makes a payment to a payee.
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Paying Agent
- An agent who accepts payments from the issuer of a security and then distributes the payments to the holders of the security. Also known as a "disbursing agent."
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Payment
- The transfer of one form of good, service or financial asset in exchange for another form of good, service or financial asset in proportions that have been previously agreed upon by all parties involved. Payment can be made in the form of funds, assets or services.
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Payment Date
- The date on which a declared stock dividend is scheduled to be paid.
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Payment For Order Flow
- The compensation and benefit a brokerage receives by directing orders to different parties to be executed. The brokerage firm receives a small payment, usually a penny per share, as compensation for directing the order to the different parties.
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Payment In Kind Bonds
- A type of bond that pays interest in additional bonds, as opposed to cash payouts.
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Payment In-Kind - PIK
- The use of a good or service as payment, instead of cash. Also known as "paid in-kind."
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Payment Option ARM
- A monthly adjusting adjustable-rate mortgage (ARM) which allows the borrower to choose between several monthly payment options: a 30 or 40-year fully amortizing payment, a 15-year fully amortizing payment, an interest-only payment, a minimum payment or any amount greater than the minimum payment.
The minimum payment option is calculated based on an initial temporary start interest rate. While this temporary start interest rate is in effect, this is the only payment option available. It is a fully amortizing payment. After the temporary start interest rate expires, the minimum payment amount remains a monthly payment option; however, whenever a payment is made which is less than the scheduled interest-only payment, deferred interest is created.
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Payment Option ARM Minimum Payment
- An option to make minimum payments on an payment option ARM, which is a complex mortgage product with a temporary low interest rate. After the expiration of the temporary start rate, the borrower retains the option to make a payment equal to the initial payment established by the start rate: the minimum payment option. Unfortunately, there is a high probability that choosing this minimum payment will create negative amortization, where you owe more after making payments than you owed before you started paying the loan back.
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Payment Shock
- The risk that a loan's scheduled future periodic payments may increase substantially. Payment shock can be the result of several things, including the expiration of an initial or temporary start interest rate (sometimes known as a teaser rate), the end of a fixed-interest rate period, the end of an interest-only payment period, an increase in an adjustable-rate mortgage's fully indexed interest rate or the recasting of a payment option ARM.
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Payout
- The expected financial return from an investment over a given period of time. Payout may be expressed on an overall or periodic basis as either a percentage of the investment's cost or in a real dollar amount. Payout can also refer to the period of time in which an investment or a project is expected to recoup its initial capital investment and become minimally profitable.
Short for "time to payout", "term to payout" or "payout period".
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Payout Phase
- The phase in an annuity during which payments are made to the annuitant. These are usually paid on a monthly basis and last for the lifetime of the annuitant. The income received from an annuity by a retired investor is considered taxable income.
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Payout Ratio
- The amount of earnings paid out in dividends to shareholders. Investors can use the payout ratio to determine what companies are doing with their earnings.
Calculated as:
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PayPal
- An electronic commerce (e-commerce) company that facilitates payments between parties through online funds transfers. PayPal allows customers to establish an account on its website, which is connected to a user's credit card or checking account. Once identification and proof of funds have been confirmed, a user may begin sending or receiving payments to and from other PayPal accounts. PayPal attempts to make online purchases safer by providing a form of payment that does not require the payor or payee to disclose credit card or bank account numbers.
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Payroll Card
- A type of bank debit card. Payroll cards draw on the user's wages or salary instead of a deposit account. Users access their money from an ATM or cash-back purchase in the same manner as with a traditional debit card.
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Payroll Deduction Plan
- A contribution plan in which an employer deducts a specified amount from an employee's pay and puts the funds toward insurance, healthcare or an investment account. In most situations, employees enter into payroll deduction plans on a voluntary basis.
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Payroll Tax
- Tax an employer withholds and/or pays on behalf of their employees based on the wage or salary of the employee. In most countries, including the U.S., both state and federal authorities collect some form of payroll tax.
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Peak
- The highest point between the end of an economic expansion and the start of a contraction in a business cycle. The peak of the cycle refers to the last month before several key economic indicators, such as employment and new housing starts, begin to fall. It is at this point that real GDP spending in an economy is its highest level.
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Peak Debt
- A point in a household or economy when the highest amount of debt is reached. In a household, peak debt is the point when the interest payments are so high compared to the income that the members must stop spending. This is followed by a period of debt reduction. The lowered spending remains, due to the psychological effects of the previous period.
Peak debt in an economy is the high point of the total debt as a percentage of GDP, or adjusted nominal debt, or both. After this high point there is a decline, usually over several years, followed by a low level of debt for several more years.
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Peak Oil
- A hypothetical date referring to the world's peak crude oil production, whereby following this day, production rates will begin to diminish. This concept is derived from geophysicist Marion King Hubbert's "peak theory", which proclaims that oil production follows a bell-shaped curve.
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Pearson Coefficient
- A type of correlation coefficient that represents the relationship between two variables that are measured on the same interval or ratio scale.
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Peer Perform
- An investment rating used by analysts when given security is expected to provide returns that are consistent with those of other companies within its sector. A peer perform is a neutral assessment and predicts a security will move in line with similar companies.
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Peer-To-Peer Lending (P2P)
- A method of debt financing that enables individuals to borrow and lend money - without the use of an official financial institution as an intermediary. Peer-to-peer lending removes the middleman from the process, but it also involves more time, effort and risk than the general brick-and-mortar lending scenarios.
Also known as "social lending".
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PEG Payback Period
- A key ratio that is used to determine the time it would take for an investor to double their money in a stock investment. The price-to-earnings growth payback period is the time it would take for a company's earnings to equal the stock price paid by the investor. A company's PEG ratio is used rather than their price-to-earnings ratio because it is assumed that a company's earnings will grow over time.
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Pegging
- 1. A method of stabilizing a country's currency by fixing its exchange rate to that of another country.
2. A practice of and investor buying large amounts of an underlying commodity or security close to the expiry date of a derivative held by the investor. This is done to encourage a favorable move in market price.
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PEN
- In currencies, this is the abbreviation for the Peruvian Nuevo Sol.
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Penalty Bid
- A bid, or offer to purchase securities, provided by a lead underwriter or other member of a syndicate as part of early IPO trading. The bid comes with the restrictions; if it is used, a penalty will be assessed to the broker offering the shares back to the underwriter. The penalty bid is created to deter investors from "flipping" IPO shares shortly after trading begins.
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Pending Home Sales Index - PHSI
- An index created by the National Association of Realtors (NAR) that tracks homes sales in which a contract is signed but the sale has not yet closed. The pending home sales index is a leading indicator of future existing home sales as it typically takes four to six weeks to close a sale after a contract has been signed.
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Pennant
- A continuation pattern in technical analysis formed when there is a large movement in a stock, the flagpole, followed by a consolidation period with converging trendlines, the pennant, followed by a breakout movement in the same direction as the initial large movement, the second half of the flagpole.
As can be seen in the above picture, there is a large rise in the stock, followed by a converging consolidation period that resembles a pennant and a resulting continuation of the initial trend.
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Penny Stock
- A stock that trades at a relatively low price and market capitalization, usually outside of the major market exchanges. These types of stocks are generally considered to be highly speculative and high risk because of their lack of liquidity, large bid-ask spreads, small capitalization and limited following and disclosure. They will often trade over the counter through the OTCBB and pink sheets.
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Pension Adjustment - PA
- The amount of contributions that can be made to a Registered Retirement Savings Plan (RRSP) on top of any contributions to a Registered Pension Plan (RPP) in a given year.
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Pension Benefit Guaranty Corporation - PBGC
- A non-profit corporation that functions under the jurisdiction of the Department of Labor and that guarantees the payment of certain pension benefits under defined-benefit plans that have been terminated with insufficient money to pay benefits.
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Pension Benefit Obligation - PBO
- An accounting term used to describe the amount of money a company must pay into a defined-benefit pension plan to satisfy all pension entitlements that have been earned by employees up to that date. The pension benefit obligation (PBO) is calculated by an actuary, who determines the benefits needed through a present value calculation.
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Pension Fund
- A fund established by an employer to facilitate and organize the investment of employees' retirement funds contributed by the employer and employees. The pension fund is a common asset pool meant to generate stable growth over the long term, and provide pensions for employees when they reach the end of their working years and commence retirement.
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Pension Maximization
- A retirement strategy for couples that involves purchasing a single life annuity on the older spouse rather than a dual or joint life with last survivor annuity that covers both people. The increased income received from the annuity will be used to fund the couple's retirement up until the older spouse dies.
Should the older spouse die first, the surviving spouse will use the life insurance proceeds to purchase a single annuity to fund the remainder of his or her retirement. At this point, the higher age of the surviving spouse will allow for more annuity income than he or she would have received at the beginning of the pension maximization process.
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Pension Pillar
- One of three pension formats as outlined by the World Bank in 1998 and which has since been adopted by many economically reforming countries in Central and Eastern Europe. The goal of the three-pillar system is to separate the major objectives of pension (retirement) plans into the following pillars:
Pillar 1 – A standardized, state-run pension system, which offers basic coverage and is primarily focused on reducing poverty.
Pillar 2 – A funded system that recipients and employers pay into; this includes pension funds and defined-contribution accounts/plans.
Pillar 3 – Voluntary private funded accounts, including individual savings plans, insurance, etc.
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Pension Plan
- A type of retirement plan, usually tax exempt, wherein an employer makes contributions toward a pool of funds set aside for an employee's future benefit. The pool of funds is then invested on the employee's behalf, allowing the employee to receive benefits upon retirement.
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Pension Plan Administrator
- An individual responsible for managing the day-to-day affairs and the strategic decisions involved with a group's pension fund/plan. More specifically, the plan administrator ensures that money is being contributed into the fund, the proper asset allocation decisions are made and that payouts are promptly distributed among all qualified plan participants or beneficiaries.
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Pension Protection Act Of 2006 - PPA
- An act of legislation that makes a large number of reforms to U.S. pension plan laws and regulations. This law made several pension provisions from the Economic Growth and Tax Relief Reconciliation Act of 2001 permanent, including the increased IRA contribution limits and the increased salary deferral contribution limits to a 401(k). It also attempts to strengthen the overall pension system and reduce the reliance on the federal pension system and the Pension Benefit Guaranty Corporation.
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Pension Shortfall
- A situation in which a company offering employees a defined benefit plan does not have enough money set aside to meet the pension obligations to employees who will be retired in the future.
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Pent Up Demand
- When the demand for a service or product is unusually strong. Pent up demand is used by economists to describe the general public's strong return to consumerism following a period of decreased spending.
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People Pill
- A defensive strategy to ward off a hostile takeover. Management threatens that, in the event of a takeover, the entire management team will resign.
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Per Capita
- A Latin term that translates into "by head," basically meaning "average per person."
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Per Capita GDP
- A measure of the total output of a country that takes the gross domestic product (GDP) and divides it by the number of people in the country. The per capita GDP is especially useful when comparing one country to another because it shows the relative performance of the countries. A rise in per capita GDP signals growth in the economy and tends to translate as an increase in productivity.
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Per Diem Interest
- The interest charge on a loan for one or more days. This does not necessarily mean that the interest on the loan compounds daily, per diem interest simply refers to the amount of interest that is due for one day that a loan is outstanding.
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Per Diem Payments
- Generally, a specified amount that employers will pay to employees as reimbursement for various expenses. Per diem payments usually assume a set dollar limit, such as $30 per day for meals or $100 per day for lodging. These payments are usually made for employee travel expenses.
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Per Share Basis
- A measure used in the financial world to illustrate the quantity of something for one share of a company's stock. Such measures are used in the analysis and valuation of a company. Examples include 'earnings per share', 'cash per share', 'revenue per share' and 'debt per share'.
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Per Stirpes
- A stipulation that, should a beneficiary predecease the testator, the beneficiary’s share of the inheritance will go to his or her heirs.
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Percentage Depletion
- A taxable deduction that assigns a set percentage of depletion to the gross income derived from extracting fossil fuels, minerals or other nonrenewable resources from the earth. Percentage depletion is provided as an incentive for drillers and investors to develop domestic mineral and energy production.
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Percentage Price Oscillator - PPO
- A technical momentum indicator showing the relationship between two moving averages. To calculate the PPO, subtract the 26-day exponential moving average (EMA) from the nine-day EMA, and then divide this difference by the 26-day EMA. The end result is a percentage that tells the trader where the short-term average is relative to the longer-term average.
Calculated as:
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Perfect Competition
- A market structure in which the following five criteria are met:
1. All firms sell an identical product.
2. All firms are price takers.
3. All firms have a relatively small market share.
4. Buyers know the nature of the product being sold and the prices
charged by each firm.
5. The industry is characterized by freedom of entry and exit.
Sometimes referred to as "pure competition".
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Perfect Hedge
- A position undertaken by an investor that would eliminate the risk of an existing position, or a position that eliminates all market risk from a portfolio. In order to be a perfect hedge, a position would need to have a 100% inverse correlation to the initial position. As such, the perfect hedge is rarely found.
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Perfect Title
- A title deed for real estate that does not have any liens attached to it. A perfect title becomes so after all liens or other defects have been removed. Perfect titles stand in contrast to quiet titles or cloud on titles.
Perfect titles can also sometimes be referred to as "good titles."
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Performance Audit
- An audit performed on an asset manager by an outside accounting firm to verify that the performance figures shown to the public on marketing materials represent the true aggregate results of the firm's clientèle. The CFA Institute has established performance presentation guidelines, called global investment performance standards (GIPS), that must be maintained by asset managers.
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Performance Bond
- A bond issued to one party of a contract as a guarantee against the failure of the other party to meet obligations specified in the contract.
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Performance Drag
- The negative effect of transaction costs on the performance of an investment. Performance drag is most commonly attributed to brokerage commissions, but there are many other factors such as timing, bid-ask spreads and other opportunity costs that can cause the return of an investment to lag behind the return seen in the market.
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Performance Index Paper - PIP
- A short-term paper on which the rate is denominated and paid in a base currency. However, the rate movement is based on the exchange rate with an alternate currency.
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Performance Shares
- In the case of stock compensation, shares of company stock given to managers only if certain company wide performance criteria are met, such as earnings per share targets.
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Performance-Based Compensation
- An incentive-based form of compensation that is reserved for hedge fund managers or elite portfolio managers. The compensation will almost always be based on a percentage of total assets managed, and will be paid out if the portfolio manager delivers returns above a pre-specified level, such as performance in relation to the S&P 500.
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Performance-Based Index
- A stock index that includes all dividends and other cash events paid out to shareholders. When measuring the performance over a given time period, the performance-based index will add in any dividend amounts to the net share price before calculating the index return.
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Period Certain
- An annuitization-method option with which the annuitant selects a specific time period for which the annuity income payments will last. This is unlike the more commonly selected life option, with which the annuitant receives an income payment for the rest of his or her life, regardless of how long (or short) their retirement years end up lasting.
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Periodic Interest Rate
- The interest rate charged on a loan or realized on an investment over a specific period of time. Most interest rates are quoted on an annual basis. If the interest on the loan or investment compounds more frequent than annually, the annual interest rate must be converted to a periodic interest rate where interest charged or realized over each compounding period can be calculated. This calculation is made by dividing the annual interest rate by the number of compounding periods.
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Periodic Interest Rate Cap
- A part of an interest rate cap structure on loans and mortgages. The periodic interest rate cap limits the amount by which the interest rate on an adjustable rate loan can adjust at specified adjustment dates. For example, an adjustable rate mortgage with a starting interest of 6%, an initial interest rate cap of 2% and a periodic interest rate cap of 2% could adjust upward no higher than 10%, or no lower than 2% at its second adjustment date. (This example assumes that the mortgage adjusted by 2%, upward or downward as the case may be, at its first adjustment date.)
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Periodic Inventory
- A method of inventory valuation for financial reporting purposes where a physical count of the inventory is performed at specific intervals. This accounting method for inventory valuation only keeps track of the inventory at the beginning of a period, the purchases made and the sales during the same period and is recorded under the asset section of the balance sheet.
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Periodic Payment Plan
- A type of investment plan, often sold to military personnel, that allows an investor to accumulate shares of a mutual fund indirectly by contributing a small, fixed sum over a period of usually 10, 15, or 25 years. In exchange for these payments, the investor owns an interest in a plan trust, which invests in a mutual fund. The plan trust's sponsor makes money by charging a "creation and sales charge", also known as a "front-end load", to investors. This sales charge is as high as 50% of the first 12 months' worth of payments, making periodic payment plans a potentially expensive investment option, especially for investors who do not remain invested for the full length of the plan.
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Periodic Payment Plan Certificate
- A certificate representing ownership interest in a periodic payment plan. Through section 27 of the Investment Company Act of 1940, the Securities and Exchange Commission regulates the investment companies that sell periodic payment plan certificates. It determines the maximum sales load that can be charged, requirements for companies issuing periodic payment plan certificates, rules regarding surrender of certificates, refund privileges and more.
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Permanent Capital Vehicle - PCV
- An investment entity for managing capital for an unlimited time horizon. A PCV is typically geared toward growing capital at the best long-term rate, and is therefore less focused on shorter-term performance.
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Permanent Life Insurance
- An umbrella term for life insurance plans that do not expire (unlike term life insurance) and combine a death benefit with a savings portion. This savings portion can build a cash value - against which the policy owner can borrow funds, or in some instances, the owner can withdraw the cash value to help meet future goals, such as paying for a child's college education. The two main types of permanent life insurance are whole and universal life insurance policies.
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Permanent Portfolio
- A portfolio construction theory devised by free-market investment analyst Harry Browne in the 1980s. Browne constructed what he called the permanent portfolio, which he believed would be a safe and profitable portfolio in any economic climate. Using a variation of efficient market indexing, Browne stated that a portfolio equally split between growth stocks, precious metals, government bonds and Treasury-bills would be an ideal investment mixture for investors seeking safety and growth.
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Permissible Non-Bank Activities
- Financial business that can be conducted by bank holding companies because they are deemed close enough to banking to be permissible by the Federal Reserve. Bank holding companies can either engage in the businesses directly or through subsidiary firms. Common examples are ownership or operation in the finance and mortgage banking sectors.
The Federal Reserve looks at whether such practices are in the public's interest before making decisions about what lines of business banks can conduct.
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Perp Walk
- A slang term describing the police action of parading an arrested suspect in handcuffs before the media.
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Perpetual Bond
- A bond with no maturity date. Perpetual bonds are not redeemable but pay a steady stream of interest forever. Some of the only notable perpetual bonds in existence are those that were issued by the British Treasury to pay off smaller issues used to finance the Napoleonic Wars (1814). Some in the U.S. believe it would be more efficient for the government to issue perpetual bonds, which may help it avoid the refinancing costs associated with bond issues that have maturity dates.
A perpetual bond is also known as a 'consol'.
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Perpetual Inventory
- An accounting method of maintaining up-to-date property records that accurately reflect the level of goods on hand.
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Perpetual Preferred Stock
- A type of preferred stock that has no maturity date. The issuers of perpetual preferred stock will always have redemption privileges on such shares. Issued perpetual preferred stock will continue paying dividends indefinitely.
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Perpetuity
- A constant stream of identical cash flows with no end. The formula for determining the present value of a perpetuity is as follows:
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Personal Consumption Expenditures - PCE
- A measure of price changes in consumer goods and services. Personal consumption expenditures consist of the actual and imputed expenditures of households; the measure includes data pertaining to durables, non-durables and services. It is essentially a measure of goods and services targeted toward individuals and consumed by individuals.
Also referred to as "consumption."
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Personal Equity Plan - PEP
- An investment plan in the U.K. that used to allow people over the age of 18 to invest in shares of U.K. companies. It was done through an approved plan, qualifying unit trust, or investment trust. Investors received both income and capital gains free of tax.
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Personal Finance
- Financial planning for individuals. Generally, it involves analyzing your current financial position and predicting short-term and long-term needs. This may involve advice on pensions, school fees, mortgages, life insurance and investments.
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Personal Identification Number - PIN
- A numerical code used in many electronic financial transactions. Personal identification numbers (PINs) are usually used in conjunction with usernames or other passwords. They are also usually required when using bank debit or credit cards, and most banks or financial institutions issue PINs separately from the cards through the mail.
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Personal Income
- An individual's total annual gross earnings coming from wages, business enterprises and various investments.
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Personal Income And Outlays
- A set of two data points produced by the Bureau of Economic Analysis that track personal income and monthly spending. Personal income is the dollar value of income from all sources by individuals in the U.S.; personal outlays is the dollar value of purchases of durable and non-durable goods and services by consumers in the U.S.
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Personal Interest
- Interest that taxpayers pay on personal and consumer loans. Personal interest is nondeductible, and the rates charged for this type of interest are often quite high. Personal interest that is received by the lender is usually reported on a cash basis.
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Personal Property
- A type of property which, in its most general definition, can include any asset other than real estate. The distinguishing factor between personal property and real estate is that personal property is movable. That is, the asset is not fixed permanently to one location as with real property such as land or buildings. Examples of personal property include vehicles, furniture, boats, collectibles, etc.
Also known as "movable property", "movables" and "chattels".
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Personal Use Property
- A type of property that an individual does not use for business purposes or hold as an investment. In other words, property that an individual owns for personal enjoyment.
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Personal-Service Activity
- Any business enterprise with the primary purpose of providing personal services. Personal-service activities encompass a wide range of professions, including law, medicine, engineering, design, finance, accounting and even performing arts. As the name implies, a personal-service activity focuses on directly providing a personalized service, such as legal advice or medical treatment, to an individual or group for compensation. Personal-service activities do not require the use of capital in order to generate material income.
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Personal-Service Corporation
- A corporation that is created for the purpose of providing personal services to individuals or groups. To be considered a personal-service corporation by the IRS, the employee-owners must perform at least 20% of the personal services themselves. The employee-owners must also own at least 10% of the outstanding stock of the personal-service corporation on the last day of the initial one-year testing period.
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Peter Lynch
- One of the most successful and well known investors of all time. Peter Lynch made his name managing assets for Fidelity Magellan Fund from 1977-1990. He grew the funds assets under his management from a mere $20 million to an astounding $14 billion - doing so by achieving an average annual return of 29%. His investment style has been descirbed as adaptive to the economic environment prevailing at the time, but Lynch always stressed that you should be able to understand what you own.
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Peter Principle
- An observation that in an organizational hierarchy, every employee will rise or get promoted to his or her level of incompetence. The Peter Principle is based on the notion that employees will get promoted as long as they are competent, but at some point will fail to get promoted beyond a certain job because it has become too challenging for them. Employees rise to their level of incompetence and stay there. Over time, every position in the hierarchy will be filled by someone who is not competent enough to carry out his or her new duties.
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Petrodollars
- The money that oil exporters receive from selling oil and then deposit into Western banks. Petrodollars are also known as petrocurrency.
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Petty Cash
- The small amount of cash and coins that an organization uses for minor purchases and providing change to customers.
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Pfandbriefe
- A type of bond issued by German mortgage banks that is collateralized by long-term assets used. These types of bonds represent the largest segment of the German private debt market and are considered to be the safest debt instruments in the private market.
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PGK
- In currencies, this is the abbreviation for the Papua New Guinea Kina.
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Phantom Gain
- A situation that arises when a gain on an investment is offset by a loss in the same investment, which usually comes from an income tax provision. Phantom gains are named as such because there is no actual return, although it may initially seem otherwise.
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Phantom Stock Plan
- An employee benefit plan that gives selected employees (senior management) many of the benefits of stock ownership without actually giving them any company stock. Sometimes referred to as "shadow stock."
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Phased Retirement
- A broad range of employment arrangements that allow an employee who is approaching retirement age to continue working with a reduced workload, and eventually transition from full-time work to full-time retirement. Phased retirement may include a pre-retirement, gradual reduction in hours (or days) of work and/or post-retirement, part-time work for pensioners who wish to remain employed.
Part-time, seasonal and temporary work or job-sharing are all work arrangements that can be a form of phased retirement.
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Phases Of Retirement
- A six-stage process described by researcher Robert Atchley that includes pre-retirement, retirement, contentment, disenchantment, reorientation and routine. Not all individuals will experience all of these stages, but the underlying idea is to provide a framework for thinking of retirement as a process that involves both emotional and financial adjustments rather than as just a one-time event.
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Phi Ellipses
- A Fibonacci trading tool used to aid investors in indentifying price movements. Essentially, using this model, investors attempt to buy high and sell low. One of its main uses is to indentify the underlying structures of price movements by analyzing the changing shape of the ellipse. The Phi Ellipse is normally drawn by a computer program due to its complexity.
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Philadelphia Fed Survey
- A business outlook survey used to construct an index that tracks manufacturing conditions in the Philadelphia Federal Reserve district. The Philadelphia Fed survey is an indicator of trends in the manufacturing sector, and is correlated with the Institute for Supply Management (ISM) manufacturing index, as well as the industrial production index.
Also known as the Philly Fed Survey.
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Philadelphia Federal Index
- A regional federal-reserve-bank index measuring changes in business growth. The index is constructed from a survey of participants who voluntarily answer questions regarding the direction of change in their overall business activities. The survey is a measure of regional manufacturing growth. When the index is above 0 it indicates factory-sector growth, and when below 0 indicates contraction.
Also known as the "Business Outlook Survey".
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Philadelphia Semiconductor Index - SOX
- A price-weighted index composed of 18 U.S. semiconductor companies primarily involved in the design, distribution, manufacture, and sale of semiconductors.
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Philadelphia Stock Exchange - PHLX
- The first securities exchange to be formed in the United States.
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Philanthropy
- 1. An activity performed with the goal of promoting the well-being of fellow man.
2. To dispense or receive aid in the form of a gift from funds intentioned for humanitarian purposes.
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Phillips Curve
- An economic concept developed by A. W. Phillips stating that inflation and unemployment have a stable and inverse relationship. According to the Phillips curve, the lower an economy's rate of unemployment, the more rapidly wages paid to labor increase in that economy.
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Phishing
- A method of identity theft carried out through the creation of a website that seems to represent a legitimate company. The visitors to the site, thinking they are buying something from a real business, submit their personal information to the site. The criminals then use the personal information for their own purposes, or sell the information to other criminal parties.
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PHLX Housing Sector Index - HGX
- An index that tracks approximately 20 companies that work directly in the construction market of the United States. The Philadelphia Stock Exchange (PHLX) Housing Sector Index (HGX) is comprised of companies in the building and prefabrication of residential homes, mortgage insurers and suppliers of building material. The HGX was created in January of 2002, and commenced trading on July 17 of the same year with an initial value of 250.
The HGX is calculated as the modified capitalization of the HGX divided by a base market divisor. Similar to the Dow divisor, the HGX divisor changes with stock splits and issues.
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PHP
- In currencies, this is the abbreviation for the Philippine Peso.
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Physical Asset
- An item of economic, commercial or exchange value that has a tangible or material existence. For most businesses, physical assets usually refer to cash, equipment, inventory and properties owned by the business. Physical assets are the opposite of intangible assets, which are non-physical assets such as leases, computer programs or agreements.
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Physical Delivery
- Term in an options or futures contract which requires the actual underlying asset to be delivered upon the specified delivery date, rather than being traded out with offsetting contracts.
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Physical Option
- An option that is based on a physical asset. Physical options give the owner the right to buy or sell physical assets at a predetermined price and date. They are called "physical" because they are based on assets such as currencies, Treasury debts and commodities, rather than stocks, futures and indexes.
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Pick-Up Tax
- A tax imposed by state authorities based on the estate tax credit the U.S. federal government allows on the federal estate tax return. As this tax is imposed at the state level, the amounts owing vary state to state. And because estates are taxed at the federal level only when the minimum federal estate threshold has been surpassed, state pick-up taxes are not always applied.
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Pickup
- A gain in yield made by selling one bond and buying another. Also referred to as "yield pickup."
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Piercing Pattern
- A technical trading signal that is marked by a closing down day with a good-sized trading range, followed by a trading gap (drop) lower the following day that covers at least half of the upward length of the previous day's real body (the range between the opening and closing prices), and then closes up for the day. A piercing pattern often signals the end of a small to moderate downward trend.
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Pig
- An investor who is often seen as greedy, having forgotten his or her original investment strategy to focus on securing unrealistic future gains. After experiencing a gain, these investors often have very high expectations about the future prospects of the investment and, therefore, do not sell their position to realize the gain.
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Piggy Back Registration
- When an underwriter allows existing holdings of a company's shares to be sold in conjunction with an offering of new public shares.
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Piggyback Mortgage
- A type of mortgage where a second mortgage or home equity loan is taken out by a borrower at the same time the first mortgage is started or refinanced. Piggyback mortgages are frequently used to lower the loan-to-value ratio (LTV) of a first position mortgage to under 80%, thereby eliminating the need for private mortgage insurance (PMI).
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Piggyback Registration Rights
- A form of registration rights that grants the investor the right to register his or her unregistered stock when either the company or another invester initiates a registration. This type of registration right is seen as inferior to demand registration rights, because this class of right-holders cannot initiate the registration process.
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Piggyback Warrants
- Additional warrants that are acquired following the exercise of primary warrants.
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Pigou Effect
- A term in economics referring to the relationship between consumption, wealth, employment and output during periods of deflation. Defining wealth as the money supply divided by current price levels, the Pigou effect states that when there is deflation of prices, employment (and thus output) will be increased due to an increase in wealth (and thus consumption).
Alternatively, with the inflation of prices, employment and output will be decreased, due to a decrease in consumption.
Also known as the "real balance effect."
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Pigovian Tax
- A special tax that is often levied on companies that pollute the environment or create excess social costs, called negative externalities, through business practices. In a true market economy, a Pigovian tax is the most efficient and effective way to correct negative externalities.
A type of a Pigovian tax is a "sin tax", which is a special tax on tobacco products and alcohol.
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Pilot Fishing
- A type of pre-marketing of an initial public offering (IPO) that involves testing investor sentiment to receive feedback on how the market may respond to an issue. Pilot fishing has led to much controversy because it could undermine the role of investment bankers by providing advice to clients about the price at which the IPO is launched.
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Pin Risk
- A risk that the writer of an options or futures contract faces when the price of the underlying asset closes at or very near the exercise price of the contract upon expiration.
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Pink Sheets
- A daily publication compiled by the National Quotation Bureau with bid and ask prices of over-the-counter (OTC) stocks, including the market makers who trade them. Unlike companies on a stock exchange, companies quoted on the pink sheets system do not need to meet minimum requirements or file with the SEC. Pink sheets also refers to OTC trading.
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Pink Slip Party
- A party that brings together professionals and recruiters who have recently been laid off. Pink slip parties are usually held during tough economic times, when unemployment is rising and businesses are closing. Often, these casual gatherings will raise money for charity, and provide job search advice to the attendees.
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Pinning the Strike
- The tendency of a stock's price to close near the strike price of heavily traded options (in the same stock) as the expiration date nears.
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Pip
- The smallest price change that a given exchange rate can make. Since most major currency pairs are priced to four decimal places, the smallest change is that of the last decimal point - for most pairs this is the equivalent of 1/100 of one percent, or one basis point.
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Pip-Squeak Pop
- A slang term used to describe a moderate price increase in a stock. A pip-squeak pop is generally used to describe a situation where a stock appreciates a sizable amount in a short period of time, but does not double or triple in value.
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Pipeline
- 1) An investment company whose purpose is to collect investment funds from a pool of individual investors and invest them in financial securities.
2) The underwriting procedure which must be completed by the Securities & Exchange Commission (SEC) before a security can be offered for sale to the public.
3) A type of risk most often present in mortgage transactions. It expresses the potential for change in financial factors during the time lapse between the mortgage application and the purchase of the property.
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Pipeline Theory
- A theory stating that an investment firm passing all capital gains, interest and dividends onto their customers/shareholders shouldn't be levied at the corporate level like most regular companies are.
Also referred to as "conduit theory".
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Pit
- A specific area of the trading floor that is designated for the trading of an individual futures or options contract.
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Pitchbook
- A sales book created by an investment bank/firm that details the main attributes of the firm. The pitchbook is used by the firm's sales force to aid it with selling products and issues, and generating new clients.
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Pivot
- A price level established as being significant either because the market fails to penetrate it or because a sudden increase in volume accompanies a move through that price level.
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Pivot Point
- A technical indicator derived by calculating the numerical average of a particular stock's high, low and closing prices.
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PKR
- In currencies, this is the abbreviation for the Pakistani Rupee.
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Placed In Service
- The point in time when an asset that can be depreciated is first placed in use. The date the asset is placed in service marks the beginning of the depreciation period. The date of purchase usually marks when an asset is placed in service, but not always.
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Placement
- The act of marketing new securities to the private or public sector.
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Placement Ratio
- A ratio that calculates the amount of bonds sold during the week as a percentage of the amount of municipal bonds that are issued during the corresponding week. Only issues of $1,000,000 par value or more are used in the calculation.
Also known as the "acceptance ratio".
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Plain Vanilla
- The most basic or standard version of a financial instrument, usually options, bonds, futures and swaps. Plain vanilla is the opposite of an exotic instrument, which alters the components of a traditional financial instrument, resulting in a more complex security.
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Plan Participant
- A plan participant either contributes into a pension plan or is in a position to receive benefit payments from the plan. It includes a retired person receiving distributions from a pension plan, or a beneficiary or dependent named by a contributing member.
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Planned Amortization Class (PAC) Tranche
- A class of tranche in a planned amortization class (PAC) bond that receives a primary payment schedule. As long as the actual prepayment rate is between a designated range of prepayment speeds, the life of the PAC tranche will remain relatively stable. This tranche of the PAC bond receives some measure of protection against prepayment risk.
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Planned Obsolescence
- A manufacturing decision by a company to make consumer products in such a way that they become out-of-date or useless within a known time period. The main goal of this type of production is to ensure that consumers will have to buy the product multiple times, rather than only once. This naturally stimulates demand for an industry's products because consumers have to keep coming back again and again.
Products ranging from inexpensive light bulbs to high-priced goods such as cars and buildings are subject to planned obsolescence by manufacturers and producers.
Also known as "built-in obsolescence".
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Planned Urban Development - PUD
- A type of community zoning classification that is planned and developed within a city, municipality and/or state that contains both residential and non-residential buildings (such as shopping centers). Open land, such as for parks, is also often included in the zones
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Platinum
- An element that is sometimes used in jewelry or as a catalyst in electronics.
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Platykurtic
- A description of the kurtosis in a distribution in which the statistical value is negative. When compared to a normal distribution, a platykurtic data set has a flatter peak around its mean, which causes thin tails within the distribution. The flatness results from the data being less concentrated around its mean, due to large variations within observations.
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Platykurtosis
- A statistical measure that indicates the level of peakedness of a probability distribution. Specifically, platykurtosis describes a distribution that has a negative excess kurtosis and appears flatter than a normal distribution, which has a kurtosis value of three.
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Play
- A slang term that describes the positive aspects of an investment decision. A play in investing is the reason why an investor made his or her decision.
"Playing the stock market" is a phrase used by beginner investors signifying that they have gained access, simulated or real, to the ups and downs of the stock market.
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Pledge Fund
- A special type of fund in which members of the fund work toward a specific investment goal by making defined contributions in a pool over a period of time. Many angel investors have started to employ a pledge fund format in venture capital investing.
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Pledged Asset
- An asset that is transferred to a lender for the purpose of securing debt. The lender of the debt maintains possession of the pledged asset, but does not have ownership unless default occurs.
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PLN
- In currencies, this is the abbreviation for the Polish Zloty.
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Plowback Ratio
A fundamental analysis ratio that measures the amount of earnings retained after dividends have been paid out. This is the opposite of the payout ratio, which measures the amount of dividends that are paid out as a percentage of earnings. Also known as "retention rate", "retention ratio" or the "earnings retention ratio".
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Plunge Team
- A colloquial reference to a group of economic leaders within the United States whose purpose is to ensure the nation's financial markets are efficient, competitive, and provide confidence for investors.
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PLUS Loan
- A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, the parent borrows money on the student's behalf. To be eligible for a PLUS Loan, a student must be enrolled at least part-time, and the parent has to pass a standard credit check.
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Plus Tick
- A price designation referring to the trading of a security at a price higher than the previous sale price for the same security.
Also known as an "uptick".
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Plutonomy
- Economic growth that is powered and consumed by the wealthiest upper class of society. Plutonomy refers to a society where the majority of the wealth is controlled by an ever-shrinking minority; as such, the economic growth of that society becomes dependent on the fortunes of that same wealthy minority.
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Point & Figure Chart
- A chart that plots day-to-day price movements without taking into consideration the passage of time. Point and figure charts are composed of a number of columns that either consist of a series of stacked Xs or Os. A column of Xs is used to illustrate a rising price, while Os represent a falling price. As you can see from the chart below, this type of chart is used to filter out non-significant price movements, and enables the trader to easily determine critical support and resistance levels. Traders will place orders when the price moves beyond identified support/resistance levels.
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Point Balance
- A statement typically produced at the end of the calendar month indicating the profits and losses of a client's open futures contracts.
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Point of Purchase - POP
A place where sales are made. On a macro-level, a point of purchase may be a mall, market or city. On a micro-level, retailers consider a point of purchase to be the area surrounding the counter where customers pay. Also known as "point of sale".
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Points
- 1. A 1% change in the face value of a bond or a debenture.
2. In futures contracts, a price change of one one-hundredth, or 1% of one cent.
3. A $1 price change in the value of common stock.
4. In real estate mortgages, the initial fee charged by the lender, with each point being equal to 1% of the amount of the loan. It can also refer to each percentage difference between a mortgage's interest rate and the prime interest rate.
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Poison Pill
- A strategy used by corporations to discourage hostile takeovers. With a poison pill, the target company attempts to make its stock less attractive to the acquirer. There are two types of poison pills:
1. A "flip-in" allows existing shareholders (except the acquirer) to buy more shares at a discount.
2. A "flip-over" allows stockholders to buy the acquirer's shares at a discounted price after the merger.
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Polarized Fractal Efficiency - PFE
- A technical indicator developed by Hans Hannula that was invented to determine price efficiency over a user-defined time period. This indicator fluctuates between -100 and +100 with 0 as the center line. Securities with a PFE greater than zero are deemed to be trending up, while a reading of less than zero indicates the trend is down.
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Policy Loan
- A loan issued by an insurance company that uses the cash value of a person's life insurance policy as collateral.
Sometimes referred to as a "life insurance loan."
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Political Futures
- An investment wherein the payout comes after an election, based on the winning party. Investors pay a flat fee to purchase the future and will receive $100 if the candidate they chose wins, and $0 in the event of a loss. The price of the future fluctuates throughout the election, based on candidate support.
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Political Risk
- The risk that an investment's returns could suffer as a result of political changes or instability in a country. Instability affecting investment returns could stem from a change in government, legislative bodies, other foreign policy makers, or military control.
Political risk is also known as "geopolitical risk", and becomes more of a factor as the time horizon of an investment gets longer.
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Polynomial Trending
- A type of trend that represents a large set of data with many fluctuations. As more data becomes available, trends often become less linear and a polynomial trend takes its place. Graphs with curved trendlines are generally used to show a polynomial trend.
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Ponzi Mania
- The seemingly sudden recognition of Ponzi schemes following the arrest of Bernard Madoff for operating an illegal Ponzi scheme. Ponzi mania took full force in December of 2008 when federal investigators discovered that Bernard Madoff had operated a huge Ponzi scheme over the past decade, defrauding investors of nearly $65 billion.
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Ponzi Scheme
- A fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns for older investors by acquiring new investors. This scam actually yields the promised returns to earlier investors, as long as there are more new investors. These schemes usually collapse on themselves when the new investments stop.
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Pool Factor
- The percentage of the original principle that is left to be distributed in a mortgage-backed security, as represented by a numerical factor that will be attached on periodic market quotes (such as in Bloomberg) and other presentations of the MBS’s price.
Calculated as:
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Pooled Funds
- Funds from many individual investors that are aggregated for the purposes of investment, as in the case of a mutual or pension fund. Investors in pooled fund investments benefit from economies of scale, which allow for lower trading costs per dollar of investment, diversification and professional money management.
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Pooled Income Fund
- A type of mutual fund comprised of gifts that are pooled and invested together. Income from the fund is distributed to both the fund's participants and named beneficiaries according to their share of the fund. If you are a donor to the fund, you and the other income recipients you choose receive quarterly payments for life, and upon your death the value of the assets will be transferred to the beneficiaries.
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Pooling Of Interests
- An accounting method, used in mergers and acquisitions, where the balance sheet items of the two companies are simply added together.
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Poop
- A slang term often used to describe people with insider information.
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Poop And Scoop
- A highly illegal practice occurring mainly on the internet. A small group of informed people attempt to push down a stock by spreading false information and rumors. If they are successful, they can purchase the stock at bargain prices.
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Pop-Up Option
- A joint and survivor option that allows you to be reinstated to the basic pension amount if the spouse predeceases the retiree. More and more companies are utilizing this option for an additional charge.
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Pork Bellies
- The commodities underlying the majority of futures contracts trading pork livestock.
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Pork Chop
- An arrangement on the floor of the NYSE whereby clerks cover the booth of a floor broker and accept orders, phone calls, and associated tasks.
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Pork-Barrel Politics
- A slang term used when politicians or governments "unofficially" undertake projects that benefit a group of citizens in return for that group's support or campaign donations. This spending mostly benefits the needs of a small select group despite the fact that the entire community's funds are being used.
Also referred to as "patronage".
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Portable Alpha
- The strategy of portfolio managers separating alpha from beta by investing in securities that differ from the market index from which their beta is derived. Alpha is the return achieved over and above the return that results from the correlation between the portfolio and the market (beta). In simple terms, this is a strategy that involves investing in areas that have little to no correlation with the market.
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Portable Benefits
- Benefits that have been paid into or accrued in an employer-sponsored plan and that can be transferred to a new employer's plan or to an individual who is leaving the workforce. Applies to benefits from health plans, retirement plans and most other defined-contribution plans.
Portability of benefits can be found within most 401(k) plans, 403(b) plans and health savings accounts (HSAs).
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Porter's 5 Forces
- Named after Michael E. Porter, this model identifies and analyzes 5 competitive forces that shape every industry, and helps determine an industry's weaknesses and strengths.
1. Competition in the industry
2. Potential of new entrants into industry
3. Power of suppliers
4. Power of customers
5. Threat of substitute products
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Portfolio
- A grouping of financial assets such as stocks, bonds and cash equivalents, as well as their mutual, exchange-traded and closed-fund counterparts. Portfolios are held directly by investors and/or managed by financial professionals.
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Portfolio Income
- Income from investments, including dividends, interest, royalties and capital gains.
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Portfolio Insurance
- 1. A method of hedging a portfolio of stocks against the market risk by short selling stock index futures.
2. Brokerage insurance such as the Securities Investor Protection Corporation (SIPC).
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Portfolio Lender
- A company that not only originates mortgage loans, but also holds a portfolio of their loans instead of selling them off in the secondary market. A portfolio lender makes money off the fees for originating the mortgages and also seeks to make profits off the spread (difference) between interest-earning assets and the interest paid on deposits in their mortgage portfolio.
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Portfolio Management
- The art and science of making decisions about investment mix and policy, matching investments to objectives, asset allocation for individuals and institutions, and balancing risk against. performance.
Portfolio management is all about strengths, weaknesses, opportunities and threats in the choice of debt vs. equity, domestic vs. international, growth vs. safety, and many other tradeoffs encountered in the attempt to maximize return at a given appetite for risk.
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Portfolio Manager
- The person or persons responsible for investing a mutual, exchange-traded or closed-end fund's assets, implementing its investment strategy and managing the day-to-day portfolio trading.
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Portfolio Margin
- The modern composite-margin requirements that must be maintained in a derivatives account containing options and/or futures contracts. Portfolio margin accounting requires a margin position that is equal to the remaining liability that exists after all offsetting positions have been netted against each other.
For example, if a position in the portfolio is netting a positive return, then it could offset the liability of a losing position in the same portfolio. This would reduce the overall margin requirement that is necessary for holding a losing derivatives position.
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Portfolio Pumping
- The illegal act of bidding up the value of a fund's holdings right before the end of a quarter, when the fund's performance is measured. This is done by placing a large number of orders on existing holdings, which drives up the value of the fund.
Also known as "marking the close".
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Portfolio Runoff
- A decrease in the assets of a mortgage-backed securities portfolio due to the prepayment of the securities held in that portfolio. It is risk these portfolios face, which can lead to pre-payment risk and that usually forces the fund to reinvest the proceeds at lower yields than where the original securities were purchased.
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Portfolio Turnover
- A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by taking either the total amount of new securities purchased or the amount of securities sold - whichever is less - over a particular period, divided by the total net asset value (NAV) of the fund. The measurement is usually reported for a 12-month time period.
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Position
- The amount of a security either owned (which constitutes a long position) or borrowed (which constitutes a short position) by an individual or by a dealer. In other words, it's a trade an investor currently holds open.
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Position Limit
- A predetermined position level set by regulatory bodies for a specific contract or option.
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Position Sizing
- The dollar value being invested into a particular security by an investor. An investor's account size and risk tolerance should be taken into account when determining appropriate position sizing.
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Position Trader
- A type of stock trader who holds a position for the long term (from months to years). Long-term traders are not concerned with short-term fluctuations because they believe that their long-term investment horizons will smooth these out.
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Positive Butterfly
- A non-parallel yield curve shift in which short- and long-term rates shift upward by a greater magnitude than medium term rates. This yield curve shift effectively humps the curve, adding to its curvature.
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Positive Carry
- A strategy of holding two offsetting positions, one of which creates an incoming cashflow that is greater than the obligations of the other.
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Positive Directional Indicator - +DI
- A component of the average directional index that is used to measure the presence of an uptrend. When the +DI is sloping upward, it is a signal that the uptrend is getting stronger. This indicator is nearly always plotted along with the negative directional indicator.
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Positive Economics
- The study of economics based on objective analysis. Most economists today focus on positive economic analysis, which uses what is and what has been occurring in an economy as the basis for any statements about the future. Positive economics stands in contrast to normative economics, which uses value judgments.
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Positive Volume Index - PVI
- An index that focuses on days where the volume has significantly increased from the previous day's trading.
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Post-Modern Portfolio Theory - PMPT
- A portfolio optimization methodology that uses the downside risk of returns instead of the mean variance of investment returns used by modern portfolio theory. The difference lies in each theory's definition of risk, and how that risk influences expected returns. Post-Modern Portfolio Theory (PMPT) uses the standard deviation of negative returns as the measure of risk, while modern portfolio uses the standard deviation of all returns as a measure of risk.
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Post-Money Valuation
- The value of a company after external financing alternatives are added to its balance sheet.
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Post-Retirement Risk
- The potential risks to financial security that a retired individual could encounter. Post-retirement risks can result in unexpected costs and expenses or lower income, which can jeopardize even the best-laid retirement plans.
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Post-Trade Processing
- After a trade is complete, it goes through post-trade processing, where the buyer and the seller compare trade details, approve the transaction, change records of ownership and arrange for the transfer of securities and cash. Post-Trade processing is especially important in markets that are not standardized such as the over-the-counter (OTC) market.
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Posted Price
- The price at which a company will buy or sell a commodity. In markets where an official exchange does not operate, traders will often refer to the posted prices of the major companies trading that commodity. The posted price is similar to a company's bid and ask
Also known as "postings".
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Posterior Probability
- The revised probability of an event occurring after taking into consideration new information. Posterior probability is normally calculated by updating the prior probability by using Bayes' theorem. In statistical terms, the posterior probability is the probability of event A occurring given that event B has occurred.
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Postnuptial Agreement
- A contract created by spouses after entering into marriage that outlines the ownership of financial assets in the event of a divorce. The contract can also set out the responsibilities surrounding any children or other obligations for the duration of the marriage.
Also known as a "post-marital agreement" or "postnup".
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Pot
- The portion of a stock or bond issue that investment bankers return to the underwriter so the portion can be sold to institutional investors.
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Pot Is Clean
- A slang phrase referring to a situation in which an underwriter has successfully sold to investors all of its available issues of a public offering of securities. Also known in more formal terms as "fully subscribed".
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Pour-Over Will
- A will established by an individual who has already taken the necessary steps to set up a trust, so that upon the death of the individual, all of his or her assets are to be transferred - or "poured over" - to the trust. By doing so, the individual ensures that his or her estate has an explicit direction to shift assets into the trust.
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Poverty
- A state or condition in which a person or community lacks the financial resources and essentials to enjoy a minimum standard of life and well-being that's considered acceptable in society. Poverty status in the United States is assigned to people that do not meet a certain threshold level set by the Department of Health and Human Services.
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Power Of Attorney
- A legal document giving one person (called an "agent" or "attorney-in-fact") the power to act for another person (the principal). The agent can have broad legal authority or limited authority to make legal decisions about the principal's property and finance. The power of attorney is frequently used in the event of a principal's illness or disability, or when the principal can't be present to sign necessary legal documents for financial transactions.
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Power of Attorney of Property
- A legal document transferring the legal right to the attorney or agent to manage and access the principal's property in the event the principal is unable to do so themselves.
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Power Ratio
- Measures a media company's revenue performance in comparison to the audience share it controls. You need to know three numbers in order to make this calculation work:
1. Total market revenue
2. The company's revenue
3. The audience share
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Pre-Approval
- An evaluation of a potential borrower by a lender that determines whether the borrower qualifies for a loan from the lender, or the maximum amount that the lender would be willing to lend. The pre-approval process involves a thorough look into the income and expenses of the borrower, including a look at the borrower's credit report and score.
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Pre-arranged Trading
- Trading that occurs between brokers through an expressed or implied agreement or understanding.
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Pre-Encashable Deposit
- A deposit made in a term deposit or CD that allows the account holder to withdraw a deposit without penalty to the principal. A pre-encashable deposit is a popular investment vehicle for individuals looking for full flexibility while saving in a guaranteed account.
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Pre-Existing Condition
- Any personal illness or health condition that was known and existed prior to the writing and signing of an insurance contract. Health or life insurance policies will often identify a customer's pre-existing conditions before writing an insurance contract for that person, and will typically not cover pre-existing conditions until a specified period of time has elapsed. In some cases, pre-existing conditions may not be covered at all.
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Pre-IPO Placement
- When a portion of an initial public offering (IPO) is placed with private investors right before the IPO is scheduled to hit the market. Typically, these private investors in a pre-IPO placement are large private equity or hedge funds that are willing to buy a large stake in the company. The size of the investment means the price paid for shares in a pre-IPO placement is usually less than the prospective IPO price.
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Pre-Market
- Trading done before the regular market opens.
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Pre-Money Valuation
- A slang phrased that refers to the value of a company's stock before it goes public. The term is often used by venture capitalists.
Also known as "pre-money".
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Pre-Provision Operating Profit - PPOP
- The amount of income a bank or similar type of financial institution earns in a given time period, before taking into account funds set aside to provide for future bad debts. The PPOP will be reduced once the bank deducts the dollar amount of bad debt provisions it determines need to be set aside to cover expected loan defaults, but this is not a cash outflow for the bank. The PPOP simply provides a reasonable estimate as to what the bank expects to have left for operating profit once it eventually incurs cash outflows due to defaulted loans.
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Pre-Qualification
- An initial evaluation of the credit worthiness of a potential borrower that is used to determine the estimated amount that the person can afford to borrow. Pre-qualification is a relatively simple and quick process of examining the potential borrower's income and expenses in order to generate an estimated borrowing range that they would likely be able to repay to the lender.
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Pre-Refunding Bond
- A type of bond issued to fund another callable bond, where the issuer actually decides to exercise its right to buy its bonds back before the scheduled maturity date. The proceeds from the issue of the lower yield and/or longer maturing pre-refunding bond will usually be invested in Treasury bills (T-bills) until the scheduled call date of the original bond issue occurs.
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Pre-Settlement Risk
- The risk that one party of a contract will fail to meet the terms of the contract and default before the contract's settlement date, prematurely ending the contract.
This type of risk can lead to replacement-cost risk.
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Pre-Syndicate Bid
- A bid entered by a syndicate manager or underwriter in the Nasdaq system to stabilize the price of a Nasdaq security prior to the effective date of a registered secondary offering. The term "penalty bid" is also used.
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Pre-Tax Contribution
- Any contribution made to a designated pension plan, retirement account or other tax deferred investment vehicle where the contribution is made before federal and/or municipal taxes are deducted.
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Pre-Tax Operating Income - PTOI
- An accounting term that refers to the difference between a company's operating revenues (from its primary businesses) and its direct expenses (except taxes) tied to those revenues. It excludes non-operating forms of revenue and non-recurring transactions such as capital gains on assets and profits from unrelated investments in other companies (unless its main business is investment in other companies).
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Precious Metals
- A classification of metals that are considered to be rare and/or have a high economic value. The higher relative values of these metals are driven by various factors including their rarity, uses in industrial processes and use as an investment commodity.
Precious metals include, but are not limted to: gold, silver, platinum, iridium, rhodium and palladium.
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Precision Score
- A number used by the TransUnion Credit Bureau to quantify the credit worthiness of borrowers. Precision scores used to be called Empirica scores before TransUnion started using the NextGen scoring model. These scores will determine how risky it is for a lending institution to lend money to borrowers.
Don't be fooled by the name though, there are many companies that use this score but call it something else. They include:
- Experian, who uses the term "FICO Advanced Risk Score".
- TransUnion, who uses the term "Precision".
- Equifax, who uses the term "Pinnacle".
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Predatory Dumping
- A type of anti-competitive event in which foreign companies or governments price their products below market values in an attempt to drive out domestic competition. This may lead to conditions where one company has a monopoly in a certain product or industry. Antitrust or competition laws forbid predatory dumping in many countries such as the U.S. and the European Union.
Also referred to as "predatory pricing".
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Predatory Lending
- Unscrupulous actions carried out by a lender to entice, induce, and/or assist a borrower in taking a mortgage that carries high fees, a high interest rate, strips the borrower of equity, or places the borrower in a lower credit rated loan to the benefit of the lender. As with most things of a dishonest nature, new and different predatory lending schemes frequently arise.
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Preemptive Right
- A privilege extended to select shareholders of a corporation that will give them the right to purchase additional shares in the company before the general public has the opportunity in the event there is a seasoned offering. A preemptive right is written in the contract between the purchaser and the company, but does not function like a put option.
Also known as "preemption rights".
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Preference Equity Redemption Cumulative Stock - PERCS
- A convertible preferred stock with an enhanced dividend that is limited in term and participation. Preference equity redemption cumulative stock (PERCS) shares can be converted for shares of common stock in the underlying company at maturity. If the underlying common shares are trading below the PERCS strike price, they will be exchanged at a rate of 1:1; but if the underlying commons are trading above the PERCS strike price, common shares are exchanged only up to the value of the strike price.
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Preferred Dividend
- A dividend that is accrued and paid on a company's preferred shares. In the event that a company is unable to pay all dividends, claims to preferred dividends take precedence over claims to dividends that are paid on common shares.
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Preferred Dividend Coverage Ratio
- A coverage ratio that measures a company's ability to pay off its required preferred dividend payments. A healthy company will have a high coverage ratio, indicating that it has little difficulty in paying off its preferred dividend requirements.
Formula:
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Preferred Equity Redemption Stock - PERC
- Preferred stock with special provisions limiting the value of its convertible shares and the mandatory redemption value at maturity.
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Preferred Habitat Theory
- A term structure theory suggesting that different bond investors prefer one maturity length over another and are only willing to buy bonds outside of their maturity preference if a risk premium for the maturity range is available. The theory also suggests that when all else is equal investors prefer to hold short-term bonds in place of long-term bonds and that the yields on longer term bonds should be higher than shorter term bonds.
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Preferred Provider Organization ? PPO
- A type of health insurance arrangement that allows plan participants relative freedom to choose the doctors and hospitals they want to visit. Obtaining services from doctors within the health insurance plan's network, called "preferred providers", results in lower fees for policyholders; however, out-of-network doctors are still covered. Coverage under a preferred provider organization (PPO) requires ongoing payment of premiums by policyholders to the insurance company.
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Preferred Redeemable Increased Dividend Equity Security - PRIDES
- First introduced by Merrill Lynch, PRIDES are synthetic securities consisting of a forward contract to purchase the issuer's underlying security and an interest bearing deposit. Interest payments are made at regular intervals, and conversion into the underlying security is mandatory at maturity.
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Preferred Stock
- A class of ownership in a corporation that has a higher claim on the assets and earnings than common stock. Preferred stock generally has a dividend that must be paid out before dividends to common stockholders and the shares usually do not have voting rights.
The precise details as to the structure of preferred stock is specific to each corporation. However, the best way to think of preferred stock is as a financial instrument that has characteristics of both debt (fixed dividends) and equity (potential appreciation). Also known as "preferred shares".
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Preliminary Prospectus
- A first draft registration statement filed by a firm prior to proceeding with an initial public offering of securities. The document, filed with the Securities & Exchange Commission, is intended to provide pertinent information to prospective shareholders about the company's business description, management, strategic initiatives, financial statements and ownership structure.
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Premature Distribution
- Any distribution taken from an IRA, qualified plan or tax-deferred annuity that is paid to a beneficiary that is under age 59.5. Premature distributions are subject to a 10% early-withdrawal penalty by the IRS as a means of discouraging savers from spending their retirement assets prematurely.
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Premium
- 1. The total cost of an option.
2. The difference between the higher price paid for a fixed-income security and the security's face amount at issue.
3. The specified amount of payment required periodically by an insurer to provide coverage under a given insurance plan for a defined period of time. The premium is paid by the insured party to the insurer, and primarily compensates the insurer for bearing the risk of a payout should the insurance agreement's coverage be required.
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Premium Adjustable Convertible Security - PEACS
- A debt instrument that combines a coupon paying bond with the option to convert the bond into common stock at a set price. These are frequently described as hybrid securities because they combine features of debt and equity, converting to ordinary shares at a set date based on a pre-determined ratio.
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Premium Bond
- A bond that is priced higher than its par value.
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Premium Put Convertible
- A convertible bond with an additional put feature that allows it to be redeemed at a premium sometime during its life.
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Premium To Net Asset Value
- A pricing situation that occurs when the stock value of a closed-end mutual fund is trading at a premium to the net asset value (NAV) of its components. The premium arises from the optimistic sentiment of investors toward the fund, which may be due to excellent management and investment strategies.
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Prenuptial Agreement
- A type of contract created by two people before entering into marriage. This contract could outline each party's responsibilities and property rights for the duration of the marriage. More commonly, prenuptial agreements outline terms and conditions associated with dividing up financial assets and responsibilities if the marriage dissolves.
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Prepackaged Bankruptcy
- A plan for financial reorganization that a company prepares in cooperation with its creditors that will take effect once the company enters bankruptcy. This plan must be voted on by shareholders before the company files its petition for bankruptcy, and can result in shorter turnaround times.
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Prepaid Expense
- A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received in the near future. While prepaid expenses are initially recorded as assets, their value is expensed over time as the benefit is received onto the income statement, because unlike conventional expenses, the business will receive something of value in the near future.
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Prepaid Interest
- The interest that a debtor pays before the first scheduled debt repayment. For taxation purposes, most kinds of prepaid interest are expensed over the life of the loan.
For mortgage loans, prepaid interest can also be the interim interest that accrues from the settlement day to the beginning of the first mortgage period.
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Prepayment
- 1. The payment of a debt obligation prior to its due date.
2. The excess payment over a scheduled debt repayment amount.
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Prepayment Model
- A model used to estimate the level of prepayments on a loan portfolio that will occur in a set period of time, given possible changes in interest rates. Prepayment models are based on mathematical equations and usually involve the analysis of historical prepayment trends. Prepayment models are generally used to value mortgage pools such as GNMA securities or other securitized debt products.
As interest rates rise, prepayment models factor in fewer prepayments. If interest rates fall, the opposite effect is accounted for, as more people will refinance their loans.
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Prepayment Penalty
- A clause in a mortgage contract that says if the mortgage is prepaid within a certain time period, a penalty will be assessed. The penalty is usually based on percentage of the remaining mortgage balance or a certain number of months worth of interest.
A prepayment penalty that applies to both the sale of a home and a refinancing transaction is called a “hard” prepayment penalty. A prepayment penalty that applies to refinancing only is called a “soft” prepayment penalty.
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Prepayment Risk
- The risk associated with the early unscheduled return of principal on a fixed-income security. Some fixed-income securities, such as mortgage-backed securities, have embedded call options which may be exercised by the issuer, or in the case of a mortgage-backed security, the borrower.
The yield-to-maturity of such securities cannot be known for certain at the time of purchase since the cash flows are not known. When principal is returned early, future interest payments will not be paid on that part of the principal. If the bond was purchased at a premium (a price greater than 100) the bond’s yield will be less than what was estimated at the time of purchase.
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Prepetition Liability
- A term that refers to liabilities that arise prior to a company filing of bankruptcy. A company has to petition for bankruptcy protection; once this is done, liabilities fall into two categories: prepetition, or those that arise prior to petition, and post-petition, those that arise after petition. These two types of liabilities are often shown on the balance sheets of companies in bankruptcy protection.
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Present Situation Index
- A subindex that measures overall consumer sentiments toward the present economic situation and is used to derive (about 40% of) the Consumer Confidence Index, a widely used economic indicator. The sub-index is compiled from data gathered from a survey of 5,000 households on questions regarding current business and employment conditions. Also known as "Current Situation Index".
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Present Value - PV
- The current worth of a future sum of money or stream of cash flows given a specified rate of return. Future cash flows are discounted at the discount rate, and the higher the discount rate, the lower the present value of the future cash flows. Determining the appropriate discount rate is the key to properly valuing future cash flows, whether they be earnings or obligations.
Also referred to as "discounted value".
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Present Value Interest Factor - PVIF
- A factor that can be used to simplify the calculation for finding the present value of a series of values. PVIFs can be presented in the form of a table with PVIF values seperated by respective period and interest rate combinations.
The 'r' represents the discount interest rate, and the 't' represents the number of periods.
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Present Value Interest Factor Of Annuity - PVIFA
- A factor which can be used to calculate the present value of a series of annuities. The initial deposit, earning interest at the periodic rate (r), perfectly finances a series of (N) consecutive dollar withdrawals. PVIFA is also a variable used when calculating the present value of an ordinary annuity.
PVIFA = 1 - (1 + r)^-N
r
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Present Value Of An Annuity
- The current value of a set of cash flows in the future, given a specified rate of return or discount rate. The future cash flows of the annuity are discounted at the discount rate, and the higher the discount rate, the lower the present value of the annuity.
C = Cash flow per period
i = Interest rate
n = Number of payments
This calculates the present value of an ordinary annuity. To calculate the present value of an annuity due, multiply the result by (1+i). (The payments start at time zero instead of one period into the future.)
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Preservation Of Capital
- An investment strategy whose primary goal is to prevent the loss of an investment's total value.
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Presidential Election Cycle (Theory)
- A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a new U.S. president. According to this theory, after the first year, the market improves until the cycle begins again with the next presidential election.
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Press Release
- News that is sent out or released by the company making the news. If it's an earnings press release, the release will discuss the company's financial results for the recently completed quarter and may provide comments from management. Press releases often list valuable contact information that can assist investors in their research, such as the company's web address, and contact and address information.
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Previous Balance Method
- A finance/accounting method that bases costs (and interest) on the amounts owing from the previous time period.
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Previous Close
- A security's closing price on the preceding day of trading.
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Price Action
- The movement of a security's price. Price action is encompassed in technical and chart pattern analysis, which attempt to find order in the sometimes seemingly random movement of price. Swings (high and low), tests of resistance and consolidation are some examples of price action.
The candlestick and price bar are important tools for analyzing price action, since they help traders visualize of price movement. Candlestick patterns such as the Harami, engulfing pattern and cross are all examples of visually interpreted price action.
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Price Basing
- A method of pricing commercial commodity transactions that bases these prices on related futures contract prices. This method is used by commodity producers, processors, merchants and consumers.
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Price By Volume Chart - PBV
- A horizontal histogram plotted on the chart of a security, which corresponds to the volume of shares traded at a specific price level. Price by volume histograms are found on the Y-axis and are used by technical traders to predict areas of support and resistance.
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Price Channel
- The price action contained between two parallel lines in a trend. In a price channel, the lower line is the trendline drawn on pivot lows, and the upper line is the channel line drawn on pivot highs. The two lines of a channel represent support and resistance. In an uptrend, for instance, a trade might be entered at the support of the trendline (shown by the green arrows in the chart) and exited at resistance of the upper channel line (shown by the red arrows). Channels show trend direction for any time frame. Trend, or price channels, can be up, down or sideways.
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Price Continuity
- A characteristic of a liquid market where the price movements between transactions are relatively small. Each trade results in minimal price changes, as if the proceeding price continued through to the next transaction.
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Price Creep
- The gradual and steady increase in the valuation or market price of an asset. Price creep refers to a situation in which either an individual or a group of individuals gradually lessen its reservations about paying higher prices for a given asset.
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Price Discovery
- A method of determining the price for a specific commodity or security through basic supply and demand factors related to the market.
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Price Discrimination
- A pricing strategy that charges customers different prices for the same product or service. In pure price discrimination, the seller will charge each customer the maximum price that he or she is willing to pay. In more common forms of price discrimination, the seller places customers in groups based on certain attributes and charges each group a different price.
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Price Elasticity Of Demand
- A measure of the responsiveness of the quantity demanded of a good to a change in its price. It is calculated as:
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Price Fixing
- Establishing the price of a product or service, rather than allowing it to be determined naturally through free market forces. This procedure is often an illegal practice.
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Price Improvement
- Attaining a higher bid price, if you are selling a stock, or a lower ask price, if you are buying a stock, than the price quoted at the time your order was placed.
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Price Inflation
- An increase in the price of a standardized good/service or a basket of goods/services over a specific period of time (usually one year). Because the nominal amount of money available in an economy tends to grow larger every year relative to the supply of goods available for purchase, this overall demand pull tends to cause some degree of price inflation.
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Price Level
- The average of current prices across the entire spectrum of goods and services produced in the economy. In a more general sense, price level refers to any static picture of the price of a given good, service or tradable security. Price levels may be given in small ranges, such as with securities prices or presented as a discrete value.
The most common price level index is the Consumer Price Index (CPI).
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Price Level Adjusted Mortgage - PLAM
- A special type of graduated-payment mortgage that adjusts for inflation. The interest rate of a price level adjusted mortgage (PLAM) does not change, but the outstanding principal is changed periodically based on the inflation rate. These adjustments are made based on the movements of an appropriate price index, such as the Consumer Price Index (CPI).
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Price Level Targeting
- A monetary policy goal of keeping overall price levels stable, or meeting a pre-determined price level target. The price level used as a barometer is the Consumer Price Index (CPI), or some similarly broad measure of cost inputs. A central bank or monetary authority operating under a price level targeting system raises or lowers interest rates in order to keep the index level consistent from year to year.
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Price Maker
- A monopoly or a firm within monopolistic competition that has the power to influence the price it charges as the good it produces does not have perfect substitutes.
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Price Multiple
- Any ratio that uses the share price of a company in conjunction with some specific per-share financial metric in order to evaluate a company's financial situation. The share price is typically divided by a chosen per-share metric to form a ratio.
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Price Protection
- A little-known, but common feature offered by most credit card companies that allows cardholders to receive a refund if an item bought with that credit card drops in price within a specified time period. This time period is usually within 30 or 60 days.
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Price Ratchet
- A trigger that increases or decreases a price of a share/asset by a certain amount. If you ratchet up the price of a stock, your actions are somehow causing the price of the stock to rise.
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Price Rate Of Change - ROC
- A technical indicator that measures the percentage change between the most recent price and the price "n" periods in the past. It is calculated by using the following formula:
(Closing Price Today - Closing Price "n" Periods Ago) / Closing Price "n" Periods Ago
ROC is classed as a price momentum indicator or a velocity indicator because it measures the rate of change or the strength of momentum of change.
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Price Rigging
- An illegal action performed by a group of conspiring businesses that occurs when the firms agree to artificially inflate prices in an attempt to recognize higher profits at the expense of the consumer. Price rigging can be found in any industry and is regulated by the antitrust division of the United States Department of Justice.
Also known as "price fixing" or "collusion".
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Price Risk
- The risk that the value of a security or portfolio of securities will decline in the future.
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Price Skimming
- A product pricing strategy by which a firm charges the highest initial price that customers will pay. As the demand of the first customers is satisfied, the firm lowers the price to attract another, more price-sensitive segment.
Therefore, the skimming strategy gets its name from skimming successive layers of "cream," or customer segments, as prices are lowered over time.
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Price Stickiness
- The resistance of a price (or set of prices) to change, despite changes in the broad economy that suggest a different price is optimal. "Sticky" is a general economics term that can apply to any financial variable that is resistant to change. When applied to prices, it means that the prices charged for certain goods are reluctant to change despite changes in input cost or demand patterns.
Price stickiness can also occur in just one direction, as in "sticky-up" or "sticky-down". A price that is sticky-up, for instance, can move up rather easily but will only will move down with pronounced effort.
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Price Swap Derivative
- An obligation made by one company to secure the declining value of another company's assets through the commitment of shares.
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Price Talk
- The discussion of the appropriate price for an upcoming security issue. The investment community will determine a reasonable range of prices within which the new security should be sold.
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Price Target
- 1. A projected price level as stated by an investment analyst or advisor.
2. A price that, if achieved, would result in a trader recognizing the best possible outcome for his or her investment. This is the price at which the trader would like to exit his or her existing position so that he or she can realize the most reward.
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Price Tension
- The phenomenon by which the seller of a particular good, service or security desires to maximize the selling price, while the buyer desires to minimize the purchasing price. Generally speaking, the greater the price tension within a particular market, the greater the bid-ask spread.
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Price to Free Cash Flow
- A valuation metric that compares a company's market price to its level of annual free cash flow. This is similar to the valuation measure of price-to-cash flow but uses the stricter measure of free cash flow, which reduces operating cash flow by capital expenditures. This is done as companies need to maintain or expand their asset bases (capital expenditure) to either continue growing or maintain the current levels of free cash flow.
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Price to Tangible Book Value - PTBV
- A valuation ratio expressing the price of a security compared to its hard, or tangible, book value as reported in the company's balance sheet. The tangible book value number is equal to the company's total book value less the value of any intangible assets. Intangible assets can be such items as patents, intellectual property, goodwill etc. The ratio is calculated as:
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Price Transparency
- The accessibility of information on the order flow for a particular stock, allowing knowledge of the quantities of stock being offered and the bids at the various price levels.
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Price Value of a Basis Point - PVBP
- A measure used to describe how a basis point change in yield affects the price of a bond.
Also knows as the "value of a basis point" (VBP) or "basis point value" (BPV).
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Price-Based Option
- A derivative financial instrument in which the underlying asset is a debt security. Typically, these options give their holders the right to purchase or sell an underlying debt security (usually a bond) or to receive cash payment based on the current value of the underlying debt security.
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Price-Earnings Ratio - P/E Ratio
- A valuation ratio of a company's current share price compared to its per-share earnings.
Calculated as:
For example, if a company is currently trading at $43 a share and earnings over the last 12 months were $1.95 per share, the P/E ratio for the stock would be 22.05 ($43/$1.95).
EPS is usually from the last four quarters (trailing P/E), but sometimes it can be taken from the estimates of earnings expected in the next four quarters (projected or forward P/E). A third variation uses the sum of the last two actual quarters and the estimates of the next two quarters.
Also sometimes known as "price multiple" or "earnings multiple".
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Price-Earnings Relative
- A price-earnings ratio of a stock divided by the price-earnings ratio of a market measure, or index, such as the S&P 500 or Wilshire 5000.
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Price-Taker
- 1. An investor whose buying or selling transactions are assumed to have no effect on the market.
2. A firm that can alter its rate of production and sales without significantly affecting the market price of its product.
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Price-To-Book Ratio - P/B Ratio
- A ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share.
Also known as the "price-equity ratio".
Calculated as:
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Price-To-Cash-Flow Ratio
- A measure of the market's expectations of a firm's future financial health. Because this measure deals with cash flow, the effects of depreciation and other non-cash factors are removed. Similar to the price-earnings ratio, this measures provides an indication of relative value.
Calculated by:
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Price-To-Innovation-Adjusted Earnings
- A variation of the price-to-earnings ratio (P/E ratio) that takes a company's level of spending on research and development (R&D) into account. It is calculated by adding any expenditure on R&D back to earnings and then calculating the P/E ratio for that company.
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Price-To-Research Ratio
- A measure of the relationship between a company's market capitalization and research and development (R&D) expenses.
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Price-To-Sales Ratio - Price/Sales
- A ratio for valuing a stock relative to its own past performance, other companies or the market itself. Price to sales is calculated by dividing a stock's current price by its revenue per share for the trailing 12 months:
The ratio can also be referred to as a stock's "PSR".
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Price-Weighted Index
- A stock index in which each stock influences the index in proportion to its price per share. The value of the index is generated by adding the prices of each of the stocks in the index and dividing them by the total number of stocks. Stocks with a higher price will be given more weight and, therefore, will have a greater influence over the performance of the index.
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Price/Earnings To Growth - PEG Ratio
- A ratio used to determine a stock's value while taking into account earnings growth. The calculation is as follows:
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Price/Earnings to Growth and Dividend Yield - PEGY Ratio
- A variation of the price-to-earnings ratio where a stock's value is further evaluated by its projected earnings growth rate and dividend yield.
Calculated as:
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Price/Growth Flow
- A measure formulated to identify companies that are producing solid earnings and investing a large amount in research and development (R&D). This measure is calculated as the following:
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Pricing Power
- An economic term referring to the effect that a change in a firm's product price has on the quantity demanded of that product. Pricing power ties in with the "Price Elasticity of Demand."
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Primary Beneficiary
- A beneficiary in a will, trust or insurance policy that is first in line to receive named benefits. Primary beneficiaries are contrasted with contingent beneficiaries, who will only receive benefits if the primary beneficiary has died. There can be more than one primary beneficiary.
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Primary Business Purpose
- A phrase denoting that the main intent of traveling out of town was to transact business. This trip may be combined with pleasure, but the primary purpose of the trip must be for business. If the business element of the trip were removed, the trip would not be taken.
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Primary Dealer
- A pre-approved bank, broker/dealer or other financial institution that is able to make business deals with the U.S. Federal Reserve, such as underwriting new government debt. These dealers must meet certain liquidity and quality requirements as well as provide a valuable flow of information to the Fed about the state of the worldwide markets.
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Primary Dealer Credit Facility - PDCF
- An institution created by the Federal Reserve to provide overnight loans to primary dealers through their clearing banks in exchange for eligible collateral. The Primary Dealer Credit Facility (PDCF) provides loans that settle the same business day and mature the following business day. As of February 3, 2009, the PDCF will remain in operation until October 30, 2009.
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Primary Market
- A market that issues new securities on an exchange. Companies, governments and other groups obtain financing through debt or equity based securities. Primary markets are facilitated by underwriting groups, which consist of investment banks that will set a beginning price range for a given security and then oversee its sale directly to investors.
Also known as "new issue market" (NIM).
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Primary Mortgage Market
- The market where borrowers and mortgage originators come together to negotiate terms and effectuate mortgage transaction. Mortgage brokers, mortgage bankers, credit unions and banks are all part of the primary mortgage market.
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Primary Offering
- The first of issuance of stock for public sale from a private company. This is the means by which a private company can raise equity capital through the financial markets in order to expand its business operations. This can also include debt issuance.
Also known as an "initial public offering" (IPO).
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Prime
- A classification of borrowers, rates or holdings in the lending market that are considered to be of high quality. This classification is placed on those borrowers that are deemed to be the most credit-worthy and the prime rate is the rate that a lender will lend to its high quality borrowers.
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Prime Bank
- Term used to describe the top 50 banks (or thereabouts) in the world. Prime banks trade instruments such as world paper, International Monetary Fund bonds and Federal Reserve notes.
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Prime Brokerage
- A special group of services that many brokerages give to special clients. The services provided under prime brokering are securities lending, leveraged trade executions, and cash management, among other things. Prime brokerage services are provided by most of the large brokers, such as Goldman Sachs, Paine Webber, and Morgan Stanley Dean Witter.
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Prime Conforming
- A sector of mortgage lending made up of loans to borrowers who are considered to be of a high credit quality, and where the dollar amount of the mortgage is equal to or less than the conforming loan limits set by the Office of Federal Housing Enterprise Oversight (OFHEO).
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Prime Rate
- The interest rate that commercial banks charge their most credit-worthy customers. Generally a bank's best customers consist of large corporations.
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Priming Loan
- A form of debtor-in-possession, or DIP financing, whereby the debtor company is able to obtain a loan to assist in specific areas of the business while it is in Chapter 11 proceedings. A priming loan must satisfy requirements for the existing creditors, and language in the loan contract may call for money to be automatically set aside by the company to pay interest and outstanding debt to existing creditors. Funds from a priming loan can usually only be used to maintain the core business, as in repairs, supply chain management and payroll.
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Principal
- 1. The amount borrowed or the amount still owed on a loan, separate from interest.
2. The original amount invested, separate from earnings.
3. The face value of a bond.
4. The owner of a private company.
5. The main party to a transaction, acting as either a buyer or seller for his/her own account and risk.
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Principal Only Strips - PO
- A type of fixed-income security where the holder is only entitled to receive regular cash flows that are derived from incoming principal repayments on an underlying loan pool. The loan is often a pool of mortgages in the form of a mortgage-backed security (MBS).
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Principal Orders
- A type of order carried out by a broker-dealer which involves the broker-dealer buying or selling for its own account and at its own risk, as opposed to carrying out trades for the brokerage's clients.
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Principal Private Residence (Canada)
- The home in which a Canadian taxpayer or family maintains its primary residence. A family unit can have only one principal private residence at any given time. In order to qualify, the house must be owned by the taxpayer or couple, or inside a personal trust.
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Principal Residence
- The primary location that a person inhabits. It doesn't matter whether it is a house, apartment, trailer or boat, as long as it is where you live most of the time.
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Principal, Interest, Taxes, Insurance - PITI
- The components of a mortgage payment. Principal is the money used to pay down the balance of the loan; interest is the charge you pay to the lender for the privilege of borrowing the money; taxes refer to the property taxes you pay as a homeowner and insurance refers to both your property insurance and your private mortgage insurance.
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Principal-Protected Note - PPN
- A fixed-income security that guarantees a minimum return equal to the investor's initial investment (the principal amount).
Also known as "principal-protected products" and "principal-protected securities."
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Print
- To execute a trade. The name comes from the printing of the trade on the ticker tape.
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Prior Probability
- The probability that an event will reflect established beliefs about the event before the arrival of new evidence or information. Prior probabilities are the original probabilities of an outcome, which be will updated with new information to create posterior probabilities.
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Private Activity Bond - PAB
- Tax-exempt bonds issued by or on behalf of local or state government for the purpose of providing special financing benefits for qualified projects. The financing is most often for projects of a private user, and the government generally does not pledge its credit.
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Private Annuity
- An agreement between two parties in which one party (annuitant) transfers an asset to another party (obligor) in return for unsecured payments for the remainder of the annuitant's life. For the agreement to be classified as a private annuity, neither party can be in the business of selling annuities - that is, neither party can be an insurance company.
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Private Banking
- Personalized financial and banking services that are traditionally offered to a bank's rich, high net worth individuals (HNWIs). For wealth management purposes, HNWIs have accrued far more wealth than the average person, and therefore have the means to access a larger variety of conventional and alternative investments. Private banks aim to match such individuals with the most appropriate options.
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Private Company
- A company whose ownership is private. As a result, it does not need to meet the strict Securities and Exchange Commission filing requirements of public companies.
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Private Equity
- Equity capital that is not quoted on a public exchange. Private equity consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies that result in a delisting of public equity. Capital for private equity is raised from retail and institutional investors, and can be used to fund new technologies, expand working capital within an owned company, make acquisitions, or to strengthen a balance sheet.
The majority of private equity consists of institutional investors and accredited investors who can commit large sums of money for long periods of time. Private equity investments often demand long holding periods to allow for a turnaround of a distressed company or a liquidity event such as an IPO or sale to a public company.
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Private Finance Initiative - PFI
- A method of providing funds for major capital investments where private firms are contracted to complete and manage the projects. These contracts are typically given to construction firms and last a long time, sometimes up to 30 years. The public services are leased to the public and the government authority makes annual payments to the private company.
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Private Foundation
- A charitable organization that, while serving a good cause, does not qualify as a public charity by government standards. A private foundation is a nonprofit organization which is usually created via a single primary donation from an individual or a business and whose funds and programs are managed by its own trustees or directors. As such, rather than funding its ongoing operations through periodic donations, a private foundation generates income by investing its initial donation, often disbursing the bulk of its investment income each year to desired charitable activities.
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Private Investment Fund
- A type of financial investment company which meets either of these criteria:
a) it has less than 100 investors, or
b) its member investors have substantial funds invested elsewhere.
These types of funds are generally exempt from federal securities regulations and laws and are included under the label of "hedge funds".
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Private Investment in Public Equity - PIPE
- A private investment firm's, mutual fund's or other qualified investors' purchase of stock in a company at a discount to the current market value per share for the purpose of raising capital. There are two main types of PIPEs - traditional and structured. A traditional PIPE is one in which stock, either common or preferred, is issued at a set price to raise capital for the issuer. A structured PIPE, on the other hand, issues convertible debt (common or preferred shares).
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Private Letter Ruling - PLR
- An interpretation of statute or administrative rules and their application to a particular set of facts or circumstances. The private letter ruling addresses unusual or complex questions pertaining to a particular taxpayer and his or her tax situation. The purpose of the letter ruling is to advise the taxpayer regarding the tax treatment he or she can expect from the IRS in the circumstances specified by the ruling. Also known as "letter ruling" or "LTR".
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Private Mortgage Insurance - PMI
- A policy provided by private mortgage insurers to protect lenders against loss if a borrower defaults. Most lenders require PMI for loans with loan-to-value (LTV) percentages in excess of 80%. This allows the borrower to make a smaller down payment of as low as 3%, instead of about 20%, and usually requires an initial premium payment and possibly an additional monthly fee depending on the loan's structure.
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Private Placement
- Raising of capital via private rather than public placement. The result is the sale of securities to a relatively small number of investors. Investors involved in private placements are usually large banks, mutual funds, insurance companies, and pension funds.
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Private Purchase
- A situation in which an investor (either individual or institutional) purchases all of the shares (or a fraction thereof) in a privately-held firm. Private purchases do not involve the use of capital markets and will likely require the skills of a broker.
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Private Purpose Bond
- A type of municipal bond that is used to finance private rather than public facilities and projects. For example, the construction of a new airport could be financed through a private purpose bond.
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Privatization
- 1. The transfer of ownership of property or businesses from a government to a privately owned entity.
2. The transition from a publicly traded and owned company to a company which is privately owned and no longer trades publicly on a stock exchange. When a publicly traded company becomes private, investors can no longer purchase a stake in that company.
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Pro Bono
- To work for the good of the public rather than for a profit or income.
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Pro Forma
- A Latin term meaning "for the sake of form". In the investing world, it describes a method of calculating financial results in order to emphasize either current or projected figures.
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Pro-Forma Earnings
- Projected earnings based on a set of assumptions and often used to present a business plan (in Latin pro forma means "for the sake of form"). It also refers to earnings which exclude non-recurring items. Pro-forma earnings are not derived by standard GAAP methods.
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Pro-Rata
- Used to describe a proportionate allocation. A method of assigning an amount to a fraction, according to its share of the whole.
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Pro-Rata Tranche
- A portion of a syndicated loan that is made up of a revolving credit facility and an amortizing term loan. The pro-rata tranche is syndicated by banks, as opposed to institutional tranches, which are primarily comprised of non-bank lending institutions. Both tranches may often be found within the same syndicated loan.
Pro-rata tranches are common within the leverage loan market, or in loans to companies with existing high debt loads.
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Pro-Tanto
- A Latin word for "only to that extent."
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Probability Density Function - PDF
- A statistical measure that defines a probability distribution for a random variable and is often denoted as f(x). When the PDF function is graphically portrayed, the area under the graph will indicate the interval under which the variable with fall.
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Probability Distribution
- A statistical function that describes all the possible values and likelihoods that a random variable can take within a given range. This range will be between the minimum and maximum statistically possible values, but where the possible value is likely to be plotted on the probability distribution depends on a number of factors, including the distributions mean, standard deviation, skewness and kurtosis.
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Probate
- The legal process in which a will is reviewed to determine whether it is valid and authentic. Probate also refers to the general administering of a deceased person's will or the estate of a deceased person without a will. The court appoints either an executor named in the will (or an administrator if there is no will) to administer the process of collecting the assets of the deceased person, paying any liabilities remaining on the person's estate and finally distributing the assets of the estate to beneficiaries named in the will or determined as such by the executor.
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Problem Child
- One of the four categories (quadrants) in the BCG growth-share matrix that represents the division within a company that has a small market share within a rapidly expanding industry.
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Procurement
- 1. To attain possession of something, usually after exerting a substantial effort to do so.
2. The purchasing of something usually for a company, government or other organization.
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Procyclic
- A condition of positive correlation between the value of a good, a service or an economic indicator and the overall state of the economy. In other words, the value of the good, service or indicator tends to move in the same direction as the economy, growing when the economy grows and declining when the economy declines.
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Producer Price Index - PPI
- A family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time. PPIs measure price change from the perspective of the seller.
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Producer Surplus
- An economic measure of the difference between the amount that a producer of a good receives and the minimum amount that he or she would be willing to accept for the good. The difference, or surplus amount, is the benefit that the producer receives for selling the good in the market.
This is shown graphically above as the area (Producer Surplus) above the producer's supply curve that it receives at the price point (P(i)). The size of this area increases as the price for the good increases.
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Product Differentiation
- A marketing process that showcases the differences between products. Differentiation looks to make a product more attractive by contrasting its unique qualities with other competing products. Successful product differentiation creates a competitive advantage for the seller, as customers view these products as unique or superior.
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Product Recall
- The process of retrieving defective goods from consumers and providing them with compensation. Recalls often occur as a result of safety concerns over a manufacturing defect in a product that may harm its user.
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Production Efficiency
- 1. An economic level at which the economy can no longer produce additional amounts of a good without lowering the production level of another product. This will happen when an economy is operating along its production possibility frontier.
2. The ability to produce a good using the fewest resources possible. Efficient production is achieved when a product is created at its lowest average total cost.
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Production Externality
- Costs of production that must ultimately be paid by someone other than the producer of a good or service. Production externalities are usually unintended and can have economic, social and environmental side effects. Production externalities can be measured in terms of the difference between the actual cost of production of the good and the real cost of this production to society at large.
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Production Gap
- An economic analytical term denoting the degree of relative deviation of actual industrial production from its perceived potential production. The production gap is a measure of how short domestic industrial production is from its potential.
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Production Possibility Frontier - PPF
- A curve depicting all maximum output possibilities for two or more goods given a set of inputs (resources, labor, etc.). The PPF assumes that all inputs are used efficiently.
As indicated on the chart above, points A, B and C represent the points at which production of Good A and Good B is most efficient. Point X demonstrates the point at which resources are not being used efficiently in the production of both goods; point Y demonstrates an output that is not attainable with the given inputs.
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Productivity
- An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in revenues and other GDP components such as business inventories. Productivity measures may be examined collectively (across the whole economy) or viewed industry by industry to examine trends in labor growth, wage levels and technological improvement.
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Productivity And Costs
- An economic data set that measures future inflationary trends with two indicators. Productivity is the indicator that measures labor efficiency in producing goods and services in the U.S. economy. Costs is the indicator that measures the unit labor costs of producing each unit of output in the U.S. economy. Together, productivity and costs monitors inflationary trends in wages, which usually affect trends of inflation in other areas.
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Profit
- A financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs and taxes needed to sustain the activity. Any profit that is gained goes to the business's owners, who may or may not decide to spend it on the business.
Calculated as:
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Profit and Loss Statement - P&L
- A financial statement that summarizes the revenues, costs and expenses incurred during a specific period of time - usually a fiscal quarter or year. These records provide information that shows the ability of a company to generate profit by increasing revenue and reducing costs. The P&L statement is also known as a "statement of profit and loss", an "income statement" or an "income and expense statement".
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Profit Before Tax - PBT