Glossary - Equilibrium

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Glossary

Is a financial term puzzling you? Look it up in our user-friendly glossary.

Accumulation

Saving money up in a pension fund. Accumulation refers to the period before you retire, when you are making contributions into your pension.

Advice

In the financial industry advice is a legal term which means ‘a recommendation of what you should do’. It must be specific to you and must comply with consumer protection regulations set by the Financial Conduct Authority. Advice contrasts with guidance which is generic information that can be given with no legal obligations on the part of the person or firm giving it.

Advisory client

For advisory clients, an investment manager must have permission from the client before buying or selling any asset that they manage.

AIM

AIM is the Alternative Investment Market, a sub-market of the London Stock Exchange that lists smaller companies. It has far less stringent regulations than the main stock exchange, which makes it much cheaper for companies to get a listing on it. Equities in companies listed on AIM are exempt from inheritance tax.

Alternative equity

Investments that are based on equities but are not classic equity funds. They may include equity-based derivatives. Their aim is to achieve the profits of equity investments but with lower risk.

Alternative Investment Market (AIM)

AIM is the Alternative Investment Market, a sub-market of the London Stock Exchange that lists smaller companies. It has far less stringent regulations than the main stock exchange, which makes it much cheaper for companies to get a listing on it. Equities in companies listed on AIM are exempt from inheritance tax.

Annual exempt amount

The is the maximum amount of money you can gift to another person in a year without paying tax, or the amount you can earn as a capital gain without paying capital gains tax.

Annuity

This is a type of insurance policy which you buy for a lump sum and which then pays you a monthly income for a defined number of years. Traditionally, pension savings were used to buy an annuity at the time of retirement. Very low interest rates are leading people to consider alternatives nowadays.

Asset

A financial asset is something you own with the expectation it will bring profits in the form of an increase in value or an interest payment, for example. An asset may also be something you own to use, such as the machinery in a factory.

Asset allocation

Dividing assets in an investment portfolio among major categories such as cash, bonds, stocks, real estate, and derivatives, by deciding what percentage of the portfolio to invest in each of them. Each asset class has different levels of return and risk.

Attorney

Under a power of attorney or lasting power of attorney, the person to whom spending and financial decisions are delegated is called the attorney. The person whose money they are managing is called the donor.

Autocall

A type of structured financial instrument which is often based on an equity index, though it can be based on an individual equity or more than one index or other underlying investments. It is a contract with a bank, which will pay out a specific amount of money if the underlying investment is above a particular value on a defined date.

Beneficiary

The person to whom the assets within the trust belong to is called the beneficiary. A beneficiary may also be the person who receives the payment when a life insurance policy pays out.

Bond

A debt security, similar to an IOU note. The bond states when a loan must be repaid and what interest the borrower (issuer) must pay to the holder. They can be issued by companies, banks or governments to raise money. Banks and investors buy and trade bonds.

Capacity for loss

This is the amount of money an investor could potentially afford to lose without suffering financial hardship. It should be taken into consideration when choosing investments.

Capital

For investors, it refers to their stock of wealth, which can be put to work in order to earn income. For companies, it typically refers to sources of financing such as newly issued shares. Banks hold capital which is their safety net, and if a borrower defaults on a loan which the bank then has to write off, this lost amount of money is taken from the bank’s capital.

Capital gain

The amount an asset increases in price between the date it is bought and the date it is sold is the capital gain. The capital gain is taxable income.

Capital gains tax

A tax paid when an asset is sold. It is calculated by subtracting the original purchase price from the sale price.

Capital growth

The increase in the value of an asset during the time an investor owns it. Capital growth is not taxable. It only becomes taxable when the asset it sold and converts into a capital gain.

Capital loss

The decrease in the value of an asset during the time an investor owns it. When the asset it sold, the capital loss can be deduted from capital gains made on other investments. This reduces the total capital gains tax liability.

Cash equivalent transfer value

When someone transfers their pension savings out of a defined benefit pension fund, the fund calculates the present day value of all future pension payments they would have received. This is the cash equivalent transfer value (CETV) of their pension, which is the amount of cash they will receive when they transfer out.

Cash flow

The amounts of money being transferred in and out of a company or an individual’s bank or other accounts.

Chargeable event

A chargeable event is any gain in money which triggers a tax charge. An example would be receiving a payouts on certain life insurance policies, life annuities and capital redemption policies.

Commodity

A raw material like oil, wheat or metals in which each unit is uniform and interchangeable (usually called fungible in the financial industry). For example, a tonne of iron is the same no matter which mine it comes from.

Conveyancing

Conveyancing is a necessary process in both buying or selling property. A professional conveyancer or conveyancing solicitor helps with the settlement and title transfer process by ensuring that their client is meeting all legal obligations and that their client’s rights are protected during this transaction.

Correction

A rapid step-change in stock market, commodity or other market prices when a factor, such as a change in regulations or tax rates for example, has immediately altered the true value of all the shares or the commodity. The term implies that the overpriced or underpriced stocks or commodities are returning to their “correct” values.

Coupon

The interest rate paid on a bond (and some other investment instruments) expressed as a percentage of the nominal value (the original purchase price).

Decumulation

Taking money out of a pension fund and reducing its total value. Decumulation refers to the period after you retire, when you are receiving an income from your pension.

Defined benefit pension

Also called a final salary pension. A type of employer pension which gives guaranteed monthly payments after retirement, which are calculated from the final salary you were paid, and the length of time you worked in the job.

Defined contribution pension

Also called a money purchase pension scheme. A type of pension which does not guarantee how much you will be paid each month after you retire, as this depends on the value of the pension pot you accumulate while paying into it.

Derivative

A financial contract based upon an asset such as a commodity, an equity, or a bond. The purpose of a derivative is for a bank to take on more risk so the buyer of the derivative bears less risk and therefore has more financial predictability. There are very many different types of derivatives

Discretionary client

A client who has authorised their investment manager to make and carry out buy and sell decisions on the client’s behalf, without needing to notify or get permission in advance. This means the investment manager can manage the client’s investment portfolio with fewer delays, which can be beneficial when prices are changing rapidly.

Diversified

A diversified portfolio contains a mix of different asset types, limiting exposure to any single asset or risk. A diversified portfolio usually carries a lower overall risk level than the sum of its parts.

Dividend

A sum of money paid regularly, usually twice a year, by a company to its shareholders (owners) out of its profits or sometimes its reserves.

Donor (in an LPA)

Under a power of attorney or lasting power of attorney (LPA), the person who has lost mental capacity and whose money is being managed for them is legally termed the donor. The money is not donated in the usual sense of the word, as it can only be spent on the person themselves.

Drawdown account

Drawdown means taking a lump sum out of a pension pot at retirement, which is usually then invested in easy-access investments so that a regular income can be taken from it. The lump sum may be taken out and placed in a drawdown account.

Dynamic fund

A dynamic fund usually holds equities and corporate bonds, switching fluidly between the two asset classses. The purpose is to sell equities when their value is high and buy bonds instead, and do the opposite when equity values are low. Pure equity  funds, by contrast, have to stay invested in equities even when they expect the market to fall. Some funds are described as dynamic because they buy the equities of smaller companies expected to grow rapidly.

Employee contributions

These are amounts of money contributed to an occupational pension fund which are deducted from a person’s salary.

Employer contributions

These are amounts of money contributed to an occupational pension fund by a person’s employer.

Employer pension

An employer pension or workplace pension is a pension that’s arranged by your employer. Contributions are taken directly from your wages and paid into your pension. Usually, your employer also adds money to your pension, and contributions from the government will be added in the form of tax relief. It is now a legal obligation in the UK for every employer to offer a workplace pension.

Equity

Equity is the capital of a company that comes from the owners of the company rather than from debt. It is represented by share certificates. When a company is publicly listed (becoming a plc rather than a limited company) these certificates can be traded between investors. The certificates can be called stock, shares or equities.

Estate

For the purposes of inheritance tax, a person’s estate is the total of all assets they own at the time of their death.

Family discretionary trust

A discretionary trust is a trust that has been set up for the benefit of one or more beneficiaries, but the trustee is given full discretion as to when and what funds are given to the beneficiaries. A family discretionary trust is a trust of this kind where the trustees and beneficiaries are from the same family and can be the same people.

Family investment company

A family owned business can be passed from parents to children without paying inheritance tax. A family investment company is type of company created specifically for the purpose of exploiting this tax regulation, as it does not conduct business but contains investments which generate income and can be passed on free from inheritance tax.

Final salary pension

Also called a defined benefit pension. A type of employer pension which gives guaranteed monthly payments after retirement, which are calculated from the amount your were paid, and the length of time you worked in the job.

Financial plan

A financial plan is a comprehensive statement of an individual’s long-term objectives for security and well-being and a detailed savings and investing strategy for achieving those objectives. A financial plan may be created independently or with the help of a certified financial planner.

Financial planner

A financial planner is a qualified investment professional who helps individuals (or companies) meet their long-term financial objectives. Financial planners may specialise in tax planning, asset allocation, risk management, retirement or estate planning.

Fixed income

Fixed incomes are a type of investment security that pay investors interest payments that do not change until their maturity date. Gilt-edged bonds or gilts (issued by the UK government), corporate bonds, debentures and certificates of deposit (CDs) are all examples of fixed-income products. They are also called fixed interest instruments.

Fixed interest

Fixed interest instruemnts are a type of investment security that pay investors interest payments that do not change until their maturity date. Gilt-edged bonds or gilts (issued by the UK government), corporate bonds, debentures and certificates of deposit (CDs) are all examples of fixed-income products. They are also called fixed income instruments for fixed incomes.

Fund manager

An employee of a large institution (such as a pension fund, hedge fund or an insurance company) who manages the investment of money on its behalf by implementing the investment strategy and managing its trading activities.

Gilts

Gilts or gilt-edged bonds are certificates representing debt loaned by investors to the UK government. They can be bought and sold and they pay the holder a fixed rate of interest until they mature (expire).

Growth fund

A growth fund is a managed equity fund which invests in the equities of companies it believes are likely to grow at a faster rate than the market average. The result of this is an increase in the value of the shares, in other words a capital gain. This contrasts with an income fund.

Guidance

In the financial industry, guidance is generic information that can be given with no legal obligations on the part of the person or firm giving it. This contrasts with advice, which means ‘a recommendation of what you should do’ and which must comply with consumer protection regulations.

Hedge fund

A hedge fund is a managed portfolio of investments that include not only the traditional asset classes such as equities or debt, but also derivatives. The common characteristic of all types of hedge fund is using derivatives combined with traditional investments with the aim of making profits regardless of whether the markets are rising or falling.

Hedging

An investment taken out to offset the potential losses of another investment. An example widely used by internation companies is currecy hedging. They buy currency exchange options, which lock them in to a specific exchange rate in the future. If the exchange rate has moved against them when the time comes, they can use the hedging instrument to offset the loss.

HMRC

Her Majesty’s Revenue and Customs (HMRC) was formed in 2005 by merging HM Customs and Excise, which dealt with revenues from imports, with the Inland Revenue which dealt with national taxes including income tax, capital gains tax, inheritance tax and so on.

Income fund

An income fund is a managed equity fund which invests in the equities of large, established companies which are unlikely to see significant growth but do generate predictable large cash flows and pay high dividends to shareholders. The result of this is a steady stream of cash flowing into the fund. This contrasts with a growth fund.

Individual savings account

An individual savings account (ISA) allows individuals to hold cash, shares, and unit trusts free of tax on dividends, interest, and capital gains. In 1999 it replaced both personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs).

Inheritance tax

Inheritance Tax is a tax on the estate (the property, money and possessions) of someone who’s died.

Instrument

Instrument is a broad generic term for many types of investment. Financial instruments are assets that can be traded, or they can also be seen as packages of capital that may be traded. These assets can be cash, a contractual right to deliver or receive cash or another type of financial instrument, or evidence of one’s ownership of an entity.

Interest

Interest is payment from a borrower to a lender, of an amount of money in addition to the loan amount. It is expressed as a percentage of the original amount lent and is usually paid in installments. Bank deposits are a type of loan made to the bank by the bank customers, and they also pay interest.

Intergenerational planning

An element of financial planning and tax planning, which focuses on the personal aspects of giving wealth or assets to heirs prior to the death of their owner. This can reduce inheritance tax liabilities, and the timing of the gifts may improve their benefits to the recipient.

Intestate

Dying intestate means dying without a will. When this happens the rules of intestacy apply, whereby the married or civil partner inherits everything up to £250k and any amount above this sum is inherited by the children in equal portions.

Investment

An asset with a monetary value, purchased with the idea that the asset will provide income in the future from interest or dividend payments, or will later be sold at a higher price for a profit (capital gain).

Investment bond

Investment bonds are life insurance policies where you invest a lump sum in a variety of available funds. Although technically they are life insurance policies, the life insurance payment is minimal and they are really used as investments. Some investment bonds have a set expiry date. How much you get back depends on how well – or how badly – the investment has done.

Investment platform

An investment platform is a website that allows investors to buy, hold and sell a range of investment funds or other investments from different fund management companies together in a single portfolio.

Investment trust

Investment trusts are closed-end investment funds. They have a strict definition under tax law and they are not trusts at all in the legal sense, they are public limited companies. Closed-ended means that once they have been created, additional money cannot be added to them, however their value can growth through investment. The original investors can sell their shares to other investors.

ISA

An individual savings account (ISA) allows individuals to hold cash, shares, and unit trusts free of tax on dividends, interest, and capital gains. In 1999 it replaced both personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs).

Junior ISA

A type of individual savings account (ISA) set up by a parent or guardian with a Junior ISA provider, specifically for their child’s future. The child owns the money but cannot use it until they are 18.

Kick-out

The kick-out date is the maturity date of certain derivative products, upon which the owner is paid thir reward and the product expires. This can also be a verb, so the products kicks out on a certain date. In the financial industry, kicking out sometimes refers to selling off an investment regardless of the price.

Lasting power of attorney

A lasting power of attorney (LPA) is a legal document used to delegate pending authority to manage either your financial affairs, or your personal and health care decisions, to one or more other people. The delegation to your attorney takes effect when you lose mental capacity, and the attorney can only use your money for yourself. People usually make a pair of LPAs to cover both health and finance.

Leasehold

A leasehold property is built upon land owned by a different person or company from the owner of the building. The land is leased for as little as 40 years or occasionally as long as 999, during which ground rent must be paid to the freeholder or owner of the land. If the lease is not renewed, the building becomes the property of the landowner when the lease expires.

Letter of wishes

Personal comments you would like to say to your heirs are placed in a Letter of Wishes. This a document is typically stored alongside your Will so that it can be communicated after your death. Also called a statement of wishes.

Liability

Something which a person or company is legally responsible for. In finance, a liability is a debt.

LISA

Lifetime ISAs (also known as LISAs) are a type of ISA that helps people save for their first home or retirement. They are only available to people below the age of 40 and any earnings contributed to them are exempt from income-tax.

Long/short fund

A Long-Short Fund is a type of hedge fund, a mutual fund that holds investments (this is called “long”) and in addition it sells securities it does not own (this is called “short” and is done using derivatives). The goal of a long-short fund is to find investments expected to go up, and find investments expected to go down, and invest in both in an attempt to increase returns.

LPA

A lasting power of attorney (LPA) is a legal document used to delegate pending authority to manage either your financial affairs, or your personal and health care decisions, to one or more other people. The delegation to your attorney takes effect when you lose mental capacity, and the attorney can only use your money for yourself. People usually make a pair of LPAs to cover both health and finance.

Marginal tax rate

Income is divided into bands for the purposes of tax, with the percentage tax rate starting at zero for the lowest band of income and being charged at increasing percentage rates for each band above this. Your marginal tax rate is the tax rate charged on the highest band that your earnings fall into. In essence it is the percentage that will be taken from your next pound of taxable income.

Maturity

Maturity is the expiry date of certain investment instruments. On maturity, the original investment of most instruments is paid back to the holder.

Money purchase pension

A type of pension which does not guarantee how much you will be paid each month after you retire, as this depends on the value of the pension pot you accumulate while paying into it. Also called a defined contribution pension.

Mutual fund

The generic term for most types of fund in which investors pool their money for it to be invested in a collection of assets.

Next of kin

A person’s nearest blood relative or their spouse or civil partner. In the UK this term means nothing more than this, and carries no legal rights whatsoever.

Nominal value

The face value of a coin or bank note, and the original price of a share, bond, or stock when it was issued, rather than its current market value. When a bond or other investment instrument matures, the nominal value is the amount that is paid in cash to the holder.

OEIC

An Open-Ended Investment Company or OEIC is a type of mutual fund legally registered in the UK, that is structured to invest in stocks and other securities. “Open-ended” means the fund can create new shares to meet investor demand. Also, the fund will cancel shares of investors who exit the fund. This contrasts with a closed-end fund which cannot create new shares.

Office of the public guardian

The Office of the Public Guardian (OPG) in England and Wales is a government body that protects the private assets and supervises the financial affairs of people who lack mental capacity for making decisions. It can grant permission for someone to become the guardian of their mentally incapacitated next of kin, so they can manage that person’s financial affairs, and it monitors their spending decisions.

Offshore investment

Offshore investment is the keeping of money in a jurisdiction other than one’s country of residence. Offshore investments are made in places where lower rates of taxes are charged than those levied in most countries.

Onshore investment

Onshore funds, for UK investors, means funds domiciled in the UK and subject to UK regulation, in contrast with offshore funds.

Open ended investment company

An Open-Ended Investment Company or OEIC is a type of mutual fund legally registered in the UK, that is structured to invest in stocks and other securities. “Open-ended” means the fund can create new shares to meet investor demand. Also, the fund will cancel shares of investors who exit the fund. This contrasts with a closed-end fund which cannot create new shares.

Paraplanner

A paraplanner is a person within the Financial Services industry that prepares Statement of Advice documents, financial modelling and other financial planning documents. The role is poorly defined and varies from company to company, but was originally created early in the 21st century as a junior role to allow financial planners to spend more time identifying clients’ investment needs.

Pension pot

Your pension pot is the total amount of pension contributions you and/or your employer have made to save for your retirement. Your pot also includes any capital growth earned from the fund’s investments, depending on how your scheme was set up.

PEP

A Personal Equity Plan (PEP) was a UK investment scheme or “wrapper” which allowed individuals to invest a limited sum each year in shares or unit trusts in British companies without liability for tax on dividends or capital gains. The scheme ended in 1999 and was replaced by Individual Savings Accounts (ISAs). Existing PEPs are still valid.

Personal equity plan

A Personal Equity Plan (PEP) was a UK investment scheme or “wrapper” which allowed individuals to invest a limited sum each year in shares or unit trusts in British companies without liability for tax on dividends or capital gains. The scheme ended in 1999 and was replaced by Individual Savings Accounts (ISAs). Existing PEPs are still valid.

Portfolio fund

A portfolio is a collection of investments held by an investment company, hedge fund, financial institution or individual. Equilibrium manages several funds which we call portfolio funds, as together they make up our company portfolio of funds under management.

Power of attorney

The authority to act for another person in specified or all legal or financial matters

Product wrapper

A wrapper (or product wrapper) is not an investment in its own right. It is a product used to hold cash and investments, such as an investment bond, an ISA or a pension fund and often has benefits such as conferring tax exemptions.

Property

As an investment, property means “real property” which refers to land, buildings and infrastructure and contrasts with “personal property” which refers to everything else.

Registered pension fund

A registered pension fund is a type of investment company, registered with HMRC. Investors contribute money to save up for their retirement. The money is invested and the fund is governed by rules which include a minimum age before which investor may not withdraw their funds except under particular circumstances.

Return

The return on an investment is the profit made above the original amount of money invested. If money is lost, the return is a negative one.

Risk

Risk in the context of finance refers to the volatility in the price of an investment. The more rapidly the price of an investment can change, and the larger the size of the price movements, the more risky an investment is considered to be.

Risk-reward profile

In every investment, there is an intrinsic connection between risk and reward. Risk refers to the speed of an investment’s price changes, and the size of the changes relative to the rest of the market. In the financial industry, risk is analysed by a variety of mathematical methods. The holy grail is to find the highest reward with the lowest risk.

Security

A security is an equity share or a bond. An equity represents part ownership of a company and a bond represents debt to a company or a government.

Self Invested Personal Pension

A self invested personal pension (SIPP) is a pension that allows you to make contributions free from income tax but then manage the investment portfolio yourself. The legal regulations are similar to those for registered pension funds, notably the rule that you cannot withdraw funds before the age of 55.

Settlor

The settlor of a trust decides how the assets in a trust should be used. This is usually set out in a document called the ‘trust deed’. Sometimes the settlor can also benefit from the assets in a trust. This is called a ‘settlor-interested’ trust and has special tax rules.

Share

Shares represent the capital of a company that comes from the owners of the company rather than from debt. When a company is publicly listed (becoming a plc rather than a limited company) these certificates can be traded between investors. The certificates can be called stock, shares or equities.

Short

In finance, a short sale (also known as a short, shorting, or going short) is taking on a legal obligation to deliver an asset that you do not own yet. In other words, it is selling something before you have bought it, and this is done when you believe the price is going to fall.

Short-dated

This describes an asset which is close to its maturity (expiry) date. For example, short dated bonds are usually defined as bonds which are due to mature within the next five years.

SIPP

A self invested personal pension (SIPP) is a pension that allows you to make contributions free from income tax but then manage the investment portfolio yourself. The legal regulations are similar to those for registered pension funds, notably the rule that you cannot withdraw funds before the age of 55.

Stamp duty

You must pay Stamp Duty Land Tax ( SDLT ) if you buy a property or land over a certain price in England and Northern Ireland.

State pension

The State Pension is a regular payment from the government most people can claim when they reach State Pension age. Not everyone gets the same amount. How much you get depends on your National Insurance record.

Statement of wishes

Personal comments you would like to say to your heirs are placed in a Letter of Wishes. This a document is typically stored alongside your Will so that it can be communicated after your death. Also called a letter of wishes.

Stock

From an investment point of view, Stock is the capital of a company that comes from the owners of the company rather than from debt. It is represented by share certificates. When a company is publicly listed (becoming a plc rather than a limited company) these certificates can be traded between investors. The certificates can be called stock, shares or equities.

Strategic asset allocation

Asset allocation means dividing assets in an investment portfolio among major categories such as cash, bonds, stocks, real estate, and derivatives, deciding what percentage of the portfolio to invest in each of them. Strategic asset allocation is planned with a long-term view in mind, taking into account the different risk profile of each asset class and structuring overall risk of the portfolio as a whole. It contrasts with tactical asset allocation

Structured product

Structured products are pre-packaged investments that normally include assets linked to interest plus one or more derivatives. They may take traditional securities such as an investment-grade bond or a stock market tracker fund, and replace the usual payment features with non-traditional payoffs, often a one-off payment when a specific condition is met.

Sustainable income

Sustainable income means income generated by an investment without eating into the capital. This means that unless the value of the capital falls too far, the income (in the form or interest or dividends, for example) can continue indefinitely.

Tactical asset allocation

Asset allocation means dividing assets in an investment portfolio among major categories such as cash, bonds, stocks, real estate, and derivatives, deciding what percentage of the portfolio to invest in each of them. Tactical asset allocation is planned with a relatively short term view in mind (18 months at Equilibrium), taking into account expectations of the short-term price movements of the assets. It contrasts with strategic asset allocation.

Tax efficient

Organising finances of a person or company so as to pay the lowest amount of tax possible as per tax regulations.

Tax planning

Tax planning is the analysis of a financial situation or plan from a tax perspective. The purpose of tax planning is to ensure tax efficiency, in other words, to pay the lowest amount of tax possible as per tax regulation.

Taxable gift

A gift made to another person which is liable to tax charges. A gift can be anything that has a value, such as money, property, possessions, or a loss in value when something’s transferred. For example if you sell your house to your child for less than it’s worth, the difference in value counts as a gift.

Trust

A trust is a legal arrangement controlling the management of assets. Trusts involve: the ‘settlor’ – the person who puts assets into a trust; the ‘trustee’ – the person who manages the trust; and the ‘beneficiary’ – the person who benefits from the trust. There are many types of trust. it is possible to be a trustee and beneficiary of the same trust. The trust assets constitute a separate fund and are not a part of the trustee’s own estate.

Trustee

The trustees are the legal owners of the assets held in a trust. Their role is to deal with the assets according to the settlor’s wishes, as set out in the trust deed or their will; manage the trust on a day-to-day basis and pay any tax due; and decide how to invest or use the trust’s assets.

Will

A legal document specifying how you wish your estate to be divided up and what you wish to be given to each of your heirs after your death.

Yield

The yield is a part of the total return generated from holding a financial security or other asset. It is expressed as a percentage of the invested amount or the current market value of the security. It may come from rental payments on properties or coupon payments on bonds.

Yield curve

A yield curve is a line that plots yields of bonds which have equal credit quality (credit ratings) but different maturity dates. The slope of the yield curve gives an idea of future interest rate changes and economic activity.

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