HS 300 key terms

A stock or similar ownership interest that represents a residual claim on a company's assets and earnings, ranking behind creditors and preferred holders in a liquidation.

A class of ownership shares that carries voting rights and a residual claim on profits, with dividends declared at the board's discretion rather than fixed by contract.

An ownership class with a stated dividend and priority over common shares in dividends and liquidation, typically carrying limited or no voting rights and behaving partly like a bond.

The total market value of a company's outstanding shares, calculated as share price multiplied by shares outstanding and used to classify firms by size.

Annual dividends per share divided by the current share price, expressed as a percentage, showing the income return a shareholder would receive at that price.

The combined result of price change plus income such as dividends or interest over a period, usually stated as a percentage of the starting investment value.

A debt security in which the issuer promises to pay periodic interest and to repay principal at maturity, giving the holder a creditor claim ahead of shareholders.

The fixed annual interest stated on a bond as a percentage of its face value, which determines the cash interest paid but not the investor's actual return.

The single annualized return an investor earns by holding a bond to maturity, assuming all coupons are reinvested at that same rate and the issuer pays in full.

A measure of a bond's price sensitivity to interest rate changes, roughly the percentage price move expected for a one percentage point shift in yields.

The danger that rising market rates will reduce the price of existing fixed-income holdings, with longer maturities and lower coupons generally more exposed.

The possibility that a bond issuer fails to make scheduled interest or principal payments, or that its perceived ability to pay deteriorates and lowers the bond's price.

An independent agency's letter-grade opinion of an issuer's ability and willingness to meet debt obligations, used by investors to gauge default risk.

A bond rating category indicating relatively low default risk, generally the top four rating tiers, which many institutional portfolios are restricted to holding.

A pooled investment vehicle that sells shares to investors and uses the proceeds to buy a diversified portfolio managed according to a stated objective.

The per-share value of a fund's assets minus liabilities, calculated at the close of each trading day and used as the price for purchases and redemptions.

A fund's annual operating costs expressed as a percentage of average net assets, deducted from fund assets and therefore reducing investor returns.

A pooled portfolio whose shares trade intraday on an exchange like a stock, typically tracking an index and generally carrying lower costs than actively managed mutual funds.

Spreading investments across assets, sectors, or issuers so that any single loss has limited effect on the overall portfolio's value.

The process of dividing a portfolio among asset classes such as stocks, bonds, and cash, which largely determines the portfolio's long-term risk and return profile.

A contract giving the buyer the right, but not the obligation, to buy or sell an underlying asset at a set price before a set date, in exchange for a premium.

A contract granting its holder the right to buy an underlying security at a specified strike price by an expiration date, valuable when the price rises.

A contract granting its holder the right to sell an underlying security at a specified strike price by an expiration date, often used as downside protection.

The regulatory and ethical obligation to recommend only investments and strategies consistent with a client's objectives, time horizon, risk tolerance, and financial circumstances.

The required process of collecting and verifying a client's identity, financial situation, investment experience, and goals before opening an account or recommending products.

A client's willingness and financial ability to accept investment losses or volatility in pursuit of higher expected returns, a core input to any recommendation.

The length of time an investor expects to hold assets before needing the money, which shapes how much short-term volatility the portfolio can absorb.

A legal and ethical standard requiring a professional to act solely in the client's best interest, placing the client's interests ahead of the firm's or the adviser's own.

A situation in which a professional's or firm's own financial interest could improperly influence advice or action, requiring disclosure, avoidance, or management.

Buying or selling securities while in possession of material, nonpublic information, or passing such information to others who trade on it, which is illegal.

Facts a reasonable investor would consider important in deciding whether to buy or sell a security, such as earnings surprises, mergers, or major litigation.

The required communication of facts investors need to evaluate a security or a recommendation, including risks, fees, and conflicts, in plain and timely terms.

The formal offering document for a new securities issue or fund that describes the investment, its risks, costs, and the issuer's business and financial condition.

The set of laws and internal controls requiring firms to verify client identity, monitor transactions, and report suspicious activity that may involve illicit funds.

The duty to seek the most favorable terms reasonably available for client orders, considering price, speed, likelihood of execution, and total cost.

Periodically adjusting portfolio holdings back to target weights after market moves shift them, which controls risk and enforces a disciplined sell-high, buy-low process.

The heightened danger of large losses when a portfolio holds too few positions or is heavily weighted in one security, sector, or issuer.