Investments Dictionary

# - A - B - C - D - E - F - G - H - I - J - K - L - M - N - O - P - Q - R - S - T - U - V - W - X - Y - Z

Illiquidity: Difficulty, cost, and/or delay in selling an asset on short notice without offering substantial price concessions.
Illiquidity Cost: Costs due to imperfect liquidity of some security.
Illiquidity Premium: Extra expected return as compensation for limited liquidity.
Immunization: A strategy that matches durations of assets and liabilities so as to make net worth unaffected by interest rate movements.
Implied Volatility: The standard deviation of stock returns that is consistent with an options market value.
In the Money: In the money describes an option whose exercise would produce profits. Out of the money describes an option where exercise would not be profitable.
Incentive fee: A fee charged by hedge funds equal to a share of any investment returns beyond a stipulated benchmark performance.
Income Beneficiary: One who receives income from a trust.
Income Statement: A financial statement showing a firm's revenues and expenses during a specified period.
Indenture: The document defining the contract between the bond issuer and the bondholder.
Index Arbitrage: An investment strategy that exploits divergences between actual futures prices and their theoretically correct parity values to make a profit.
Index Fund: A mutual fund holding shares in proportion to their representation in a market index such as the S&P 500.
Index Model: A model of stock returns using a market index such as the S&P 500 to represent common or systematic risk factors.
Index Option: A call or put option based on a stock market index.
Indifference Curve: A curve connecting all portfolios with the same utility according to their means and standard deviations.
Industry Life Cycle: Stages through which firms typically pass as they mature.
Inflation: The rate at which the general level of prices for goods and services is rising.
Information Ratio: Ratio of alpha to the standard deviation of diversifiable risk.
Initial Public Offering: Stock issued to the public for the first time by a formerly privately owned company.
Input List: List of parameters such as expected returns, variances, and covariances necessary to determine the optimal risky portfolio.
Inside Information: Nonpublic knowledge about a corporation possessed by corporate officers, major owners, or other individuals with privileged access to information about a firm.
Insider Trading: Trading by officers, directors, major stockholders, or others who hold private inside information allowing them to benefit from buying or selling stock.
Insurance Principle: The law of averages. The average outcome for many independent trials of an experiment will approach the expected value of the experiment.
Interest Coverage Ratio: Measure of financial leverage. Earnings before interest and taxes as a multiple of interest expense.
Interest Coverage Ratio, or Times Interest Earned: A financial leverage measure (EBIT divided by interest expense).
Interest Rate: The number of dollars earned per dollar invested per period.
Interest Rate parity relationship (theorem): The spot‐futures exchange rate relationship that prevails in well‐functioning markets.
Interest Rate Swaps: A method to manage interest rate risk where parties trade the cash flows corresponding to different securities without actually exchanging securities directly.
Intermarket Spread Swap: Switching from one segment of the bond market to another (from Treasuries to corporates, for example).
Intrinsic Value (of a Firm): The present value of a firm's expected future net cash flows discounted by the required rate of return.
Intrinsic Value of an Option: Stock price minus exercise price, or the profit that could be attained by immediate exercise of an in‐the‐money option.
Inventory Turnover Ratio: Cost of goods sold as a multiple of average inventory.
Investment: Commitment of current resources in the expectation of deriving greater resources in the future.
Investment Bankers: Firms specializing in the sale of new securities to the public, typically by underwriting the issue.
Investment Company: Firm managing funds for investors. An investment company may manage several mutual funds.
Investment Horizon: Time horizon for purposes of investment decisions.
Investment Portfolio: Set of securities chosen by an investor.
Investment-grade Bond: Bond rated BBB and above or BAA and above. Lower‐rated bonds are classified as speculative grade or junk bonds.

Connect With Us