Glossary

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B

 * Bond : A contract where the issuer borrows money from a buyer, for a certain amount of time (maturity), in return of a certain interest rate. See here for further details.


 * Broker : A person who acts as a proxy of investors, performing sell and buy offers to the market, in stock exchanges.

C

 * Call : (of a bond) When a bond is terminated before maturity. A company that calls a bond has to pay a premium for such a premature end. A factor that can contribute for a company to take such a decision is, for instance, a decline of the market interest rates. In this case, it can be profitable for a company to pay the premium due to the call, and refinance at lower interest rates.

D

 * Dividend : Return of a share, due to company profits. The total amount of profits is divided among shareholders, in the form of dividends, and in investment in the company. The ratio of the dividend over the share price is the dividend yield.

E

 * Earnings per Share (EPS) : The company profits divided by the total number of shares outstanding. This is a measure of the company profit in a per share basis. This value is essential for valuing stocks. See also P/E ratio (PER).

I

 * Initial Public Offering (IPO) : The operation where a number of a company shares are initially put to sale at the market.

M

 * Maturity : The date a bond contract ends, in normal conditions. At maturity, the bond issuer pays back the exact amount of money it received when the bond was initially issued.

P

 * Par value : (of bonds) Nominal value of a bond. Common bonds are initially sold at par value, corresponding the the exact amount to be returned to the bond buyer at the maturity. There is one exception -- zero cupon bonds -- which are intially sold at a discount, yield no interest, and are returned at par value. In this case, the valorization corresponds to the difference between the par value and the discount which it is initially sold.


 * Payout ratio : The percentage of the Earnings per Share (EPS) that is given to shareholders, This is the same to say the ratio between the dividend (per share) and the earnings per share. The larger the payout ratio is, the higher the dividends returned by a stock. However, lower payout ratios also mean larger amounts of investment in the company, potentially leading to larger growth rates of the company.

S

 * Share : Represents a percentage of a company. Quoted companies have their ownership divided among shareholders, each one owning a certain amount of shares. A part of each year profits are usually distributed among shareholders (dividends), while the rest stays in the company, contribuiting to its growth. However, it is not unusual for companies to distribute no dividends, and directing all profits for investment in company growth. See here for further details.


 * Shareholder : A person who owns shares. Companies have periodical general assemblies with its shareholders, since they have the last word in several decisions, such as choice of the board of directors, destiny of profits (e.g., dividends versus investment), and so on.


 * Stock : Shares from a specific company.


 * Stock exchange : Institution where stocks are traded among investors, by the way of brokers. Individual (and institutional) investors do not have direct access to the stock exchanges, The brokers act a proxies of these investors.