Category: Financial Terms

What Is GDP Per Capita? GDP per capita measures a country’s economic output divided by its population. It indicates how much economic production (goods and services) can be attributed, on average, to each person and is commonly used as a proxy for national prosperity. Key Takeaways GDP per capita = Gross Domestic Product ÷ Population….

Per Capita Per capita (Latin: “by head”) expresses a total value on a per-person basis. It’s commonly used in economics and statistics to compare metrics like GDP, income, spending, or resource use across populations of different sizes. Key takeaways Per capita = total value ÷ population. Common measures: GDP per capita and income per capita….

Pension Plans A pension plan is an employer-established retirement program that provides employees with income in retirement. Plans vary in structure and risk allocation: some guarantee a set lifetime benefit paid by the employer, while others depend on contributions and investment returns. Key takeaways Defined-benefit plans guarantee a specific monthly payment or lump sum at…

Penny Stocks A penny stock generally refers to shares of small companies that trade for less than $5 per share. Many trade over the counter (OTC)—through venues such as the OTC Bulletin Board (OTCBB) or OTC Markets—rather than on major exchanges, although some low-priced stocks do appear on exchanges like Nasdaq or the NYSE. Key…

Pennant Chart Pattern: A Guide to Continuation Signals in Technical Analysis What is a pennant? A pennant is a short-term continuation pattern that appears after a strong price move (the “flagpole”). It consists of a brief consolidation with converging trendlines that form a small symmetrical triangle, typically lasting about one to three weeks. Traders watch…

Penetration Pricing Explained: Effective Strategies and Real-World Examples What is penetration pricing? Penetration pricing is a strategy where a company launches a new product or service at a deliberately low price to attract customers, gain market share, and increase visibility. The low introductory price can be temporary (a short promotion) or part of a longer-term…

Pell Grants Key takeaways Pell Grants are federal, need-based grants for undergraduate students who demonstrate financial need on the Free Application for Federal Student Aid (FAFSA). Pell Grants do not generally require repayment. For the 2025–2026 award year, the maximum Pell Grant is $7,395. Lifetime eligibility is limited to the equivalent of 12 full-time semesters…

Currency Pegging Currency pegging is the practice of fixing a nation’s exchange rate to another currency or a basket of currencies. Governments or central banks maintain the peg by buying and selling foreign exchange reserves to keep the domestic currency at a predetermined rate. Pegging is commonly used to reduce exchange-rate volatility, encourage trade and…

Peer-to-Peer (P2P) Lending: How It Works, Benefits, and Risks Peer-to-peer (P2P) lending is a marketplace model that connects individual borrowers directly with individual lenders through online platforms, bypassing traditional banks. Borrowers may obtain more favorable rates than some bank offerings, while lenders can pursue higher returns than typical savings accounts or certificates of deposit. However,…

Peer-to-Peer (P2P) Economy A peer-to-peer (P2P) economy is a decentralized economic model in which individuals transact directly with one another to buy, sell, or co-produce goods and services, rather than routing activity through traditional, incorporated firms. Producers in a P2P system often own their means of production and deliver finished goods or services directly to…

Peer Group: Definition, Uses, Example, Pros & Cons What is a peer group? A peer group is a set of individuals or organizations that share one or more defining characteristics—such as age, education, industry, size, market capitalization, or financial position. Peer groups often form hierarchies and can influence members’ decisions and behavior. They are widely…

P/E 10 Ratio (CAPE / Shiller PE) Definition The P/E 10 ratio, also called the cyclically adjusted price-to-earnings (CAPE) ratio or Shiller PE, is a valuation measure that divides a market’s current price level by the average of its inflation‑adjusted earnings per share (EPS) over the previous 10 years. It smooths earnings through business cycles…

Understanding Payroll Tax: FICA, Medicare, and Unemployment Explained Key takeaways * Payroll taxes fund specific government programs—primarily Social Security and Medicare—and are withheld from wages. * FICA combines Social Security (6.2% employee / 6.2% employer) and Medicare (1.45% employee / 1.45% employer), for a combined 7.65% each paid by employee and employer. * Self-employed individuals…

Payroll Explained: How It Works and How to Calculate Payroll Taxes Payroll is the process of compensating employees and recording payroll-related obligations under federal, state, and local law. It encompasses calculating gross pay, withholding taxes and deductions, issuing payments, and recording employer tax liabilities. Accurate payroll administration is essential for legal compliance, employee satisfaction, and…

PayPal: How It Works and What to Know What is PayPal? PayPal is an online payment platform that enables individuals and businesses to send and receive money, pay for purchases, and manage transactions without directly sharing bank or card details with merchants. It supports online checkout, person-to-person transfers, in‑store payments via card readers, and additional…

Payout Ratio What it is The payout ratio (or dividend payout ratio) measures the share of a company’s earnings that is distributed to shareholders as dividends. It is usually expressed as a percentage of net income, and less commonly can be measured against cash flow. Why it matters The payout ratio helps assess how sustainable…

Understanding Payouts: Definition, Types, and How They Work A payout is the money an investor or beneficiary receives from an investment, annuity, pension, or project. It can be delivered as a lump sum or as regular distributions and is also used in capital budgeting to describe the time a project takes to recover its initial…

Payment-in-Kind (PIK) Key takeaways Payment-in-kind (PIK) means paying with goods, services, or additional securities instead of cash. In finance, PIK instruments let issuers defer cash interest or dividends by issuing more securities; they carry higher yields and higher risk. Common PIK structures include traditional, pay-if-you-can, pay-if-you-like (toggle), and holdco arrangements. PIK preserves short-term cash but…

Explore Payment Methods: Pros and Cons of Cash, Cards, and Digital Payments Payments are exchanges of money, goods, or services under an agreed arrangement. They range from physical cash and checks to cards, electronic transfers, mobile wallets, and cryptocurrencies. Understanding each method’s benefits, risks, and typical use cases helps individuals and businesses choose the right…

What is a payee? A payee is the party that receives payment in a financial transaction in exchange for goods, services, or a contractual obligation. A payee can be an individual, a business, a trust, a custodian, or multiple recipients sharing a payment. Payments to a payee can be made by cash, check, electronic transfer,…

What is a payday loan? A payday loan is a short-term, high-cost loan typically sized around the borrower’s next paycheck. These small-dollar loans are meant to be repaid quickly—often within two to four weeks—and are commonly used by people facing immediate cash needs. Because of steep fees and short repayment schedules, payday loans can be…

Payback Period What it is The payback period is the time it takes for an investment to recover its initial cost from the cash inflows it generates. It measures how long until an investment reaches its breakeven point. Formula and calculation Payback Period = Cost of Investment / Average Annual Cash Flow Explore More Resources…

Payable on Death (POD) A payable-on-death (POD) account is a bank account or similar deposit on which the account holder names one or more beneficiaries to receive the funds automatically when the account holder dies. Also called a Totten trust, a POD bypasses probate and generally overrides provisions in a will for that specific account….

Pay Yourself First: How and Why to Prioritize Savings Key takeaways “Pay yourself first” means setting aside money for savings before spending on bills or discretionary purchases. Regular, automated saving builds a financial cushion for emergencies and long‑term goals like retirement or a home. A significant share of Americans lack adequate emergency savings: many could…

What Is a Pattern Day Trader (PDT)? A pattern day trader (PDT) is a regulatory designation for a margin account that executes four or more day trades within five business days, when those day trades represent more than 6% of the account’s total trading activity over the same period. When an account meets this definition,…

Patriot Act: Definition, Key Provisions, and Impact What is the USA PATRIOT Act? The USA PATRIOT Act (commonly called the Patriot Act) is U.S. federal legislation enacted in response to the terrorist attacks of September 11, 2001. Its stated purpose is to strengthen national security by expanding the investigatory and intelligence-gathering powers available to law…

Path Dependency: Definition, Causes, Effects, and Examples Key takeaways Path dependency describes how past decisions or established practices constrain future choices, causing organizations or societies to continue using a given technology, policy, or process even when better alternatives exist. Causes include sunk costs, institutional inertia, network effects, and coordination challenges. Common examples include the QWERTY…

Protecting Americans From Tax Hikes (PATH) Act The Protecting Americans From Tax Hikes (PATH) Act of 2015 is a federal law that renewed and expanded multiple tax credits for individuals, families, and businesses while adding measures to reduce fraud. Several temporary tax provisions were extended or made permanent, and administrative rules were introduced to give…

Patent Key takeaways A patent is a government-granted property right that gives an inventor exclusive rights to an invention for a limited time in exchange for public disclosure. The main U.S. patent types are utility, design, and plant patents. Utility and plant patents generally last 20 years from filing; design patents last 14 or 15…

What It Means to Be Past Due on a Loan — and the Consequences What “past due” means A payment is “past due” when it hasn’t been received by the lender by the cutoff time on its due date. Past-due payments trigger penalties such as late fees, higher interest, and negative credit reporting. Repeated or…

Passive Investing Key takeaways * Passive investing seeks market returns while minimizing trading and management costs. * Common vehicles are index mutual funds and exchange-traded funds (ETFs) that track broad benchmarks (e.g., the S&P 500). * Advantages include lower fees, tax efficiency, transparency, and simplicity; disadvantages include limited flexibility and unlikely outperformance of the benchmark….

Passive Income Passive income is money earned from ventures that require little ongoing effort once set up. Examples include rental properties, dividends, royalties, digital products, and income from leased land. While many passive streams need initial time, capital, or expertise, they can provide recurring revenue with limited day-to-day involvement. Key takeaways Passive income: recurring earnings…

Passive Foreign Investment Company (PFIC) Key takeaways * A PFIC is a non‑U.S. corporation subject to special U.S. tax rules when most of its income or assets are passive. * A foreign corporation meets the PFIC tests if either: * 75% or more of its gross income is passive (income test), or * 50% or…

Passive Activity Loss Rules Passive activity loss rules limit how and when losses from passive activities can reduce taxable income. Losses from activities in which the taxpayer did not materially participate generally can be used only to offset passive income, not earned (active) income. Key takeaways Passive losses can offset only passive income. A passive…

Partnership: Definition, Types, Taxation, Pros & Cons Key takeaways A partnership is a business arrangement in which two or more people agree to run a business and share its profits, losses, and liabilities. Partnerships are typically pass-through entities for tax purposes: the business itself does not pay income tax; profits and losses flow to partners….