Back-end load
A sales charge that is imposed when investors redeem shares of a mutual fund. Also known as the contingent deferred sales charge (CDSC), a back-end load generally declines over time. For instance, if you sell the mutual fund shares after one year, you may owe a 5% charge, but if you hold for three years, it may decline to 2%. Unfortunately, the cumulative 12b-1 fee always compensates any possible loss the fund company might incur by long-term shareholders holding onto their shares until the stated load is 0%. Paying the front-end load is often the better deal. See "Cost Control."
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Balanced fund
A mutual fund that invests in a mixture of stocks, bonds and cash. A balanced fund attempts to blend asset classes to produce a conservative growth and income portfolio. It is also known as a "hybrid" or "asset allocation" fund.
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Balance of payments
A statement of a country's trade and financial transactions with the rest of the world over a period of time.
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Balance of trade
The difference between the value of a country's imports and its exports during a specific time period. When a country exports more than it imports, it is said to have a favorable balance of trade; when imports predominate, the balance is called unfavorable.
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Balance sheet
Financial statement that lists a company's assets and liabilities as of a specified date. The balance sheet presents a company's financial condition by listing what it owns — assets such as cash, inventory, factories, equipment and accounts receivable — and what it owes — liabilities such as short-term and long-term debt and accounts payable. The difference between assets and liabilities is known as shareholder's equity or book value.
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Banker's acceptances
A form of financing used in import/export transactions.
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Bankruptcy
A state of insolvency of an individual or an organization — in other words, an inability to pay debts. The U.S. bankruptcy code is divided into chapters that provide different types of relief from insolvency. Under Chapter 7 bankruptcy, you petition the court to be freed from all your debts following the liquidation of almost all your assets. Certain assets, like your house, are usually exempt from liquidation. Chapter 11 allows you to remain in possession of your assets, but a repayment schedule must be negotiated with creditors.
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Barrier options
Variations of the standard financial options. They are activated or cease to exist once the price of the underlying security has reached a specified level.
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Basis point
One-hundredth of one percentage point, or 0.01%. Basis points make for a handy way to state small differences in yield. For example, it's much easier to say one bond yields 10 basis points more than another than it is to say it yields one-tenth of one percentage point more. It is also used for interest rates. An interest rate of 5% is 50 basis points greater than an interest rate of 4.5%.
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Bearer stock
Stock certificates that aren't registered in any name. They are negotiable without endorsement by any person.
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Bear market
Any market in which stock prices are declining for a prolonged period, usually falling by 20% or more. See "The Stock Market Chamber of Horrors" for a good example.
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Bel-20 Index
Index of 20 stocks on the Brussels stock market.
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Bellwether bond
For the U.S. market, it is the 10-year Treasury note, which recently replaced the 30-year Treasury bond as the benchmark for evaluating the bond market in general. See Types of Bonds.
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Beneficiary
A person you name in your will, life insurance policy, retirement plan or other financial arrangement to receive a benefit at your death.
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Best three-month return
The fund's highest three-month return measured in rolling three-month periods over the past five years.
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Beta
A measure of an investment's volatility relative to a chosen benchmark. For stocks or stock funds, the benchmark is usually the S&P 500. For bonds or bond funds, it is Treasury bills. The beta of the benchmark is always 1.00. So a stock fund with a beta of 1.00 has experienced up and down movements of roughly the same magnitude as the S&P 500. Meanwhile, a fund with a beta of 1.25 is expected to do 25% better than the S&P in an up market and 25% worse in a down market. Generally speaking, the higher the beta, the more risky the investment. But without a high R-squared, a beta statistic can be meaningless. R-squared determines how much an investment's return is correlated to its benchmark. Also, see alpha.
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Bid
The price that someone is willing to pay for a security or an asset. In the stock market, the bid portion of a stock quote is the highest price anyone is willing to pay for a security at that time.
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Bid price
The price that someone is willing to pay for a security or an asset. In the stock market, the bid portion of a stock quote is the highest price anyone is willing to pay for a security at that time. The difference between the ask price and bid price is known as the spread.
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Big Board
Another name for the New York Stock Exchange (NYSE).
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Bill of exchange
A signed, written order by one business that instructs another business to pay a third business a specific amount. Also called a draft.
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Blend fund
Somewhere between growth funds and value funds are blend funds. Applying both strategies, they might, for instance, invest in both high-growth Internet stocks and cheaply priced automotive companies. As such, they are difficult to classify in terms of risk. The S&P 500 index funds invest in every company in the S&P 500 and could therefore qualify as a blend. But other funds are more extreme in using both styles. See "Investment Strategy."
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Block trade
Buying or selling 10,000 shares of stock or $200,000 or more worth of bonds.
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Blue-chip stocks
Stocks of companies known for their long-established record of earning profits and paying dividends. Blue chips tend to be large, stable and well known. Most of the top stocks in the S&P 500 are blue chips.
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Bodily injury liability coverage
As part of an auto policy, the liability insurance that pays if someone is hurt or killed in an accident that is your fault.
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Bollinger bands
A method used by technical analysts, who rely on studying the historical trading patterns of securities to predict their future movements. Bollinger bands are fixed lines above and below a security's average price. As volatility increases, the bands widen.
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Bombay Stock Exchange Sensitive Index
Index of leading shares on the Bombay Stock Exchange.
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Bond
A debt instrument that pays a set amount of interest on a regular basis. The amount of debt is known as the principal, and the compensation given to lenders for making such funds available is typically in the form of interest payments. There are three major types of bonds: corporate, government and municipal. A corporate bond with a low credit rating is called a high-yield or junk bond. See "What Exactly Is A Bond?"
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Bond broker
A bond broker acts as your agent, calling around to different bond dealers to find the best prices for the bonds you want. Brokers may charge a fee for their services or simply make money by increasing the markup, or the spread between the purchase and sale price of a bond.
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Bond Buyer Municipal Bond Index
An index based on 40 long-term municipal bonds that is often used to track the performance of tax-free municipal bonds. The index is compiled by The Bond Buyer, a trade publication that also has several other closely watched municipal bond indexes.
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Bond dealers
Dealers maintain their own inventory of bonds and make trades with either the general public or brokers. Dealers make money off the difference between the bid and ask price of a bond. If your broker offers to act as a dealer, that means he can sell you bonds from his own inventory. This is usually a better deal since it removes a layer of commissions that will be added if your broker has to go to another dealer to find you a particular bond.
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Bond fund
A bond mutual fund specializes in pooling the purchase of bonds into a diversified, managed portfolio. Most bond fund portfolios pay income, which can be reinvested or distributed, on a monthly basis. Bond fund maturities can be a short as one year and as long as 30-years. The disadvantage of a bond fund is that it's not a bond. It has neither a fixed yield nor a contractual obligation to give investors back their principal at some later maturity date — the two key characteristics of individual bonds. However, there are many varieties of bond funds, including government, corporate, and municipal. In the case of corporate bonds, which can be volatile, a diversified fund could be the better option than buying individual issues. See "Bonds or Bond Funds."
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Bond rating
An assessment of the likelihood that a bond issuer will pay the interest on its debt on time. Bond ratings are assigned by independent agencies, such as Moody's Investors Service and Standard & Poor's. Ratings range from AAA or Aaa (highest) to D (in default). Bonds rated below B are not investment grade and are called high-yield or junk bonds. Since the likelihood of default is greater on such bonds, issues are forced to pay higher interest rates to attract investors. See "Types of Bonds."
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Bond yield
Stated simply, the yield on a bond is the interest you actually earn on your investment. If you buy a new issue, your yield is the same as the interest rate, but if you buy on the secondary market, your yield may be higher or lower. When the yield of a bond goes up, its price has fallen. Conversely, if a bond's yield falls, its market value has risen. See "When Yield Goes Up, Price Goes Down."
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Book-to-bill ratio
A measure of sales trends of a company or industry. Book-to-bill is a demand to supply ratio of orders on a firms books to number of order filled. A number above 1 indicates an expanding market, and a number below 1 is a contracting market. For example, a book-to-bill ratio of 103 means that for every $100 of products shipped, $103 in new orders was received. This monthly figure is of major interest to investors in the high-technology sector, where sales momentum and inventory control are key to financial health.
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Book value
The difference between a company's assets and its liabilities, usually expressed in per-share terms. Book value is what would be left over for shareholders if the company were sold and its debt retired. It takes into account all money invested in the company since its founding, as well as retained earnings. It is calculated by subtracting total liabilities from total assets and dividing the result by the number of shares outstanding. Examining the price-to-book ratio (P/B) of an industrial company with a lot of hard assets is a good way of telling if it's undervalued or overvalued. See "Price/Book Value."
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Bottom fishing
Buying stocks whose prices have bottomed out or fallen to low levels. Value investors favor this investment technique.
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Bottom line
Accounting term for the net profit or loss.
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Bourse
A term used for stock exchanges in Europe.
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Brady bonds
Securities issued by foreign governments as part of a debt-restructuring program initiated by former U.S. Treasury Secretary Nicholas Brady.
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Break the buck
When a money-market fund's share price falls below the $1-a-share value it is intended to maintain, the fund is said to "break the buck." Money funds are supposed to be safe investments and easily convertible into cash; thus the stable $1 share price. Cases of breaking the buck have been rare. See "Money-Market Funds."
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Broker
A person who gives advice and handles orders to buy or sell stocks, bonds, commodities and options. Brokers work for full-service and discount brokerage firms. The type of firm you use determines the amount of commissions you pay and advice you receive from your broker. See brokerage firm.
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Brokerage firm
When you buy or sell a security, you generally do so through a brokerage firm. Brokerage firms fall into two main camps: full-service brokers and discount brokers. Discount brokers charge far lower commissions than full-service brokers, and a growing number of deep discounters charge especially low commissions. But there is a trade-off. If you use a discount broker, you will get little or no investment advice, so you must be willing to make your own buy and sell decisions. A full-service broker, on the other hand, will help you pick investments and devise a financial plan. See "Power to the People."
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Broker Call Rate
The broker call rate (also known as the "broker loan rate") is the interest rate that banks charge brokerages to cover the security positions of the brokerage's customers. Most brokerages will charge you slightly above this amount when you borrow on margin. Usually the rate is about a percentage point higher than the Federal Funds Rate.
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Bull market
A bull market is a prolonged period of time in which stock prices rise. These markets, which can last several months to years, tend to be characterized by high trading volume.
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Bundesbank
Germany's central bank.
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Business productivity
The Labor Department's monthly measurement of output or production per hour of work.
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BVL Index
Index of shares listed on the Lisbon Stock Exchange.
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