Glossary R - Z



A statistical measure of dispersion that is the difference between the highest and lowest valued observations or outcomes.

Real return

The return or yield on an investment after taking out the effects of inflation.

Recapture of depreciation

The difference between the lesser of an asset's original cost or sales price and its book value for tax purposes, which is taxed as ordinary income for tax purposes.


A decline in business activity (output, employment, income and trade), that typically lasts from six months to a year and is usually accompanied by contractions in the economy.


In the context of economic conditions, a period of time in which levels of production, employment, and sales begin to improve.

Registered Investment Adviser

An individual who provides investment advice and is required by the Investment Adviser Act to register with the Securities and Exchange Commission.

Reinvestment rate risk

The uncertainty associated with the yield on the reinvestment of intermediate cash flows (e.g., the interest earned on a bond).

  Required rate of return

The return that shareholders demand to compensate themm for the time value of money tied up in their investment and the uncertainty of the future cash flows from this investment.

Residual loss

The implicit cost in an agency relationship that remains after monitoring and bonding efforts, resulting from the misalignment of managers and owners' interests.

Residual value

The expected value of an asset at the end of its useful life. Also referred to as the salvage value.

Retained earnings

In a balance sheet, the accumulation of prior periods' earnings, less any paid dividends; in an income statement, the amount of earnings for the period not paid out in dividends.


The income on an investment, generally stated as a percentage of the original investment or beginning of year value.

Return on assets

The ratio of net income to total assets; a measure of a firm's return on its investment in total assets.

Return on common equity

The ratio of earnings available to common shareholders to common shareholders' equity; a measure of common shareholdes' return on their investment.

Return on equity

The ratio of net income to shareholders' equity; a measure of shareholders' return on their investment.

Return ratio

A measure of the net benefit from the employment of resources, expressed as a ratio of the net benefit to the amount of resources expended.

Reverse mortgage

A loan, secured by real estate, that provides periodic payments to the homeowner from the financial institution, increasing the amount loan over time.

Right of subrogation

The right of the insurer to seek reimbursement from the party that caused the loss (or from the person's insurance company).


In insurance, a danger or a hazard of a loss of the insured property. The chance of deviating from the average or expected value.

Risk aversion

An individual's dislike for risk such that the individual must be compensated for bearing risk.

Risk neutral

Indifferent towards risk.

Risk preferent

A desire to take on risk; a willingness to pay to take on risk.

Risk tolerance

An individual's ability to emotionally and financially deal with the exposure to a financial loss.

Rule of 72

A rule of thumb that can be used to determine the length of time it takes for an amount to double. The product of the number of periods and the interest rate (as a whole number) is equal to 72 for the doubling of an amount.

Rule of 78

A method of determining the proportions of paid installments that are interest and repayments of principal, and is, effectively, a penalty for early repayment of the loan.


Sales credit

Credit created by the seller of the goods or services.

Sales risk

The uncertainty associated with the number of units to be sold and the price at which these units will be sold.

Salvage value

The expected value of an assetat the end of its useful life. Also referred to as the residual value.

Savings and loan association

A financial institution that accepts savings deposits and provides home loans.

Secondary market

A market in which assets are sold among investors (e.g., NYSE).

Secured debt or secured loan

Debt backed by collateral; in the event of non-payment of interest and/or principal, the specified asset can be sold and the proceeds used to pay the creditor.

Security market line

The relationship between the expected return on a security and the security's beta.

Shareholder ratio

A ratio that restates financial data in terms of a share of stock.

Simple interest

An interest arrangement on a loan such that interest is calculated based on the loaned amount only.

Sole proprietorship

A business enterprise owned by one person.

Speculative grade debt

Debt that is rated BB -- using Standard and Poor's system (or Ba using Moody's system) -- or less; non-investment grade debt; also referred to as junk bond.

Standard deviation

A statistical measure of dispersion; the square root of the variance.


Persons who have an interest in the well-being of a company; the shareholders, employees, community, and customers of a company.

Statement of cash flows

A financial statement that summarizes the cash flows from operating activities, the cash flows from (or for) financing activities, and the cash flows from (or for) investing activities.

Stated value

A nominal amount assigned to a share of stock for accounting purposes.

Statement of financial position

See Balance sheet.

Straight coupon

Interest specified as a fixed percentage of the security's face value.

Straight line depreciation

A method of depreciation that expenses the same amount of an asset's cost each year of the asset's life.

Subchapter S corporation ("Sub S")

A corporation that qualifies for a special tax status that allows the corporation to be treated as a partnership for tax purposes, bringing any losses directly to the owners' individual tax returns.

Sum of years' digits

A method of depreciation that expenses an amount equal to ratio of the years remaining in the asset's life to the sum of the years' of an assets's life.

Systematic risk

See market risk.


Testamentary trust

A trust established at the time of the death of the grantor.

Tax credit

A credit against taxes payable, which reduces taxes paid dollar-for-dollar.

Tenants in common

A form of ownership in which each owner's share can be sold, deeded, or given away without the other owners' consent.

Tenants by the entirety

A form of ownership reserved for married persons in which the property is owned jointly but the consent of the other spouse is required to divide or sell the property.

Terminal value

In the context of capital budgeting, the future value of an investment that includes both the cash flows generated from the investment and the returns from reinvesting any intermediate cash flows.

Term life insurance

An insurance policy in which the insurer agrees to pay a specified amount of money in he event of the death of the insured during the policy period. There is no savings aspect to term insurance and the specified amount may be fixed throughout the policy period (straight term insurance) or decreasing throughout the policy period (decreasing term insurance).

Total debt to assets ratio

The ratio of a firm's total debt (i.e., current and long term debt) to its total assets; a measure of a firm's financial leverage.

Treasury stock

The value of the shares of a corporation's own stock that is bought and held by the corporation.


A legal document that transfer the property and/or income of one party to another party/parties.

Truth in Lending Act

A law that is intended to assure that every consumer who has the need for consumer credit is given meaningful information with respect to the cost of credit. Also referred to as the Consumer Credit Protection Act.

Turnover ratio

A measure of the gross benefit from the employment of resources, expressed as a ratio of this gross benefit (e.g., sales revenue) to resources (e.g. total assets).


Unsystematic risk

The risk of an asset's returns that is unrelated to changes in the returns of the market in general; also referred to as company-specific risk.



Whole life insurance

An insurance policy in which the insurer agrees to pay a specified amount of money in the event of the death of the insured. Whole life policies also have a saving feature such that there is a cash value of a policy, based on earnings on paid-in premiums, which increases throughout the life of the policy.




The amount earned on a security over a period of time, generally stated as a percentage of the value of the security at the beginning of the period.

Yield curve

A representation of interest rates for different time remaining to maturity.

Yield to call

The return on a callable security calculated assuming that the security will be called (that is, bought back by the security issuer) at a specific point in time at a specified call price; usually calculated using the first available call.

Yield to maturity

The yield or return calculated assuming that the investor buys the security and holds it to maturity.


Zero-coupon bond

A debt obligation that does not pay explicit interest.


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