Category: Financial Terms

Anchoring and Adjustment Anchoring and adjustment is a cognitive heuristic in which people rely heavily on an initial piece of information—the anchor—when making estimates or decisions, then adjust away from that anchor to arrive at a final value. Adjustments are often insufficient, so judgments remain biased toward the anchor. When the anchor is close to…

Anchoring Anchoring is a cognitive shortcut in which people rely heavily on an initial piece of information—the “anchor”—when making subsequent judgments or decisions. That anchor can be irrelevant or arbitrary (a sticker price, purchase price, or first offer), yet it disproportionately shapes estimates, valuations, and negotiation outcomes. Key takeaways Anchoring is a bias that makes…

Android Operating System Key takeaways Android is a mobile operating system developed by Google for touchscreen devices — smartphones, tablets, smart TVs, cars, and wearables. The Android source code is available as open source (AOSP), but commercial devices commonly include proprietary Google components. Android powers a large share of mobile devices and competes directly with…

Analysis of Variance (ANOVA) Analysis of Variance (ANOVA) is a statistical method for comparing the means of three or more groups to determine whether observed differences are likely real or due to random variation. By partitioning total variability into components attributable to different sources, ANOVA identifies whether one or more group means differ significantly. Key…

Amsterdam Stock Exchange (AEX) Overview The Amsterdam Stock Exchange traces its roots to 1602 with the founding of the Dutch East India Company (VOC) and is widely regarded as the oldest continuously operating stock exchange. It emerged to provide a regulated marketplace where investors could buy and sell shares in joint-stock ventures that financed long-distance…

Amortized Loan: Definition, How It Works, and Key Insights What is an amortized loan? An amortized loan is repaid through regular, fixed payments that cover both interest and principal. Early payments are weighted more toward interest; over time the principal portion increases. Common examples include fixed-rate mortgages, auto loans, and many personal loans. Key takeaways…

Understanding Amortized Bonds: Definition, Mechanics, and Examples What is an amortized bond? An amortized bond repays principal gradually over its life, with each payment covering both interest and a portion of principal. Early payments are mostly interest; later payments increasingly reduce principal. This contrasts with bullet or balloon loans, where principal is repaid in a…

What Is an Amortization Schedule? How to Calculate With Formula An amortization schedule is a table that shows how a loan or intangible asset is expensed over time. For loans, it lists each payment and the portion that goes to interest versus principal, and it shows the remaining balance after each payment. For intangible assets,…

What is an amortization schedule? An amortization schedule is a table that shows how the value of a loan or an intangible asset declines over time. For loans, it lists each payment and breaks it into interest and principal components. For intangible assets (patents, trademarks, goodwill), it shows how the asset’s cost is allocated across…

Amortization of Intangibles What it is Amortization of intangibles is the systematic expensing of an intangible asset’s cost over its useful or tax life. Intangible assets—such as patents, trademarks, goodwill, and other intellectual property—are written off through amortization, while physical assets are written off through depreciation. Key takeaways Amortization spreads the cost of an intangible…

Amortizable Bond Premium What it is An amortizable bond premium is the amount paid for a bond above its face (par) value. For many taxable bonds, that premium can be amortized over the life of the bond to reduce the amount of interest income reported for tax purposes. The Internal Revenue Service requires the constant…

Americans with Disabilities Act (ADA): Meaning, History, and Impact Overview The Americans with Disabilities Act (ADA) of 1990 is a landmark civil-rights law that prohibits discrimination against people with disabilities. It covers employment, public services and transportation, public accommodations, communications, and certain government activities. The ADA also requires reasonable accommodations so people with disabilities can…

American Stock Exchange History: From AMEX to NYSE American Overview The American Stock Exchange (AMEX), originally the New York Curb Exchange, was historically the third-largest U.S. stock exchange by trading volume. Known for listing emerging companies and pioneering new products, the exchange handled roughly 10% of U.S. securities trading at its peak. After a series…

What is an American option? An American option (American-style option) is an options contract that can be exercised at any time up to and including its expiration date. This contrasts with a European option, which can only be exercised on the expiration date. The flexibility to exercise early can be valuable for capturing favorable price…

American Opportunity Tax Credit (AOTC) Overview The American Opportunity Tax Credit (AOTC) is a partially refundable federal tax credit that helps offset qualified higher-education expenses for eligible students during their first four years of postsecondary study. The maximum annual credit is $2,500 per eligible student; up to $1,000 (40%) of that amount may be refundable….

American Express Card: Types, Benefits, and Fees Explained What is an American Express card? An American Express (Amex) card is a payment card issued and processed by American Express Company. Amex issues credit cards, charge cards, and prepaid cards for consumers, small businesses, and corporations. Unlike many competitors, Amex operates both as the card issuer…

American Dream Definition The American Dream is the belief that anyone—regardless of origin or socioeconomic status—can achieve personal success through hard work, opportunity, and upward mobility. It often emphasizes homeownership, education, entrepreneurship, and the freedom to define a fulfilling life. Origins and historical roots The phrase was popularized by James Truslow Adams in his 1931…

American Depositary Share (ADS) American Depositary Shares (ADSs) let U.S. investors buy equity in non‑U.S. companies on U.S. exchanges without trading on foreign markets. They are issued by a U.S. depositary bank and trade in U.S. dollars, representing a specified number of underlying foreign shares. What an ADS Is An ADS represents one or more…

American Depositary Receipt (ADR) What is an ADR? An American Depositary Receipt (ADR) is a U.S.-dollar–denominated certificate that represents shares in a foreign company and trades on U.S. exchanges or over-the-counter (OTC). ADRs let U.S. investors buy and sell foreign equity without directly dealing with foreign exchanges, currencies, or local settlement systems. How ADRs work…

Amended Tax Return: What It Is, When to File, and How to Do It Key takeaways * An amended return corrects or changes a previously filed federal tax return. * Use IRS Form 1040-X to amend individual returns. * Common reasons to amend: incorrect filing status, dependents, income, credits, or deductions. * Generally file within…

Amalgamation What is an amalgamation? An amalgamation is the combination of two or more companies into a single, entirely new legal entity. Unlike an acquisition—where one company purchases and absorbs another—none of the original companies continue to exist after an amalgamation; their assets, liabilities, and operations are transferred to the newly formed company. The term…

Always Be Closing (ABC): What It Means and Why It’s Evolving Key takeaways “Always Be Closing” (ABC) is a sales mantra urging salespeople to keep every interaction focused on advancing toward a sale. The phrase was popularized by David Mamet’s Glengarry Glen Ross and became shorthand for aggressive, results-driven selling. Research and changing buyer behavior…

Altman Z-Score: Definition, Formula, and How to Interpret It What it is The Altman Z-score is a financial metric that estimates a publicly traded company’s likelihood of bankruptcy. Developed by NYU Stern professor Edward Altman in 1967, the model combines five financial ratios to gauge profitability, leverage, liquidity, solvency, and activity. It has been widely…

Alternative Trading System (ATS) What is an ATS? An Alternative Trading System (ATS) is an electronic trading venue that brings together buyers and sellers of securities outside of traditional national exchanges. ATSs are commonly used by institutional investors to execute large orders with reduced market impact and greater anonymity. In Europe, comparable venues are called…

Alternative Minimum Tax (AMT) Key takeaways The AMT is a parallel tax system that ensures high earners pay a minimum level of federal income tax. It adds back certain deductions and adjustments to compute alternative minimum taxable income (AMTI), then applies a separate exemption and tax rates. Exemption amounts are phased out at higher AMTI…

What are alternative investments? Alternative investments are financial assets outside conventional categories like stocks, bonds, and cash. They include tangible assets and private-market vehicles such as real estate, private equity, commodities, art and collectibles, cryptocurrencies, hedge funds, and peer-to-peer loans. These assets often behave differently from public markets and are used to diversify portfolios, seek…

Alternative Depreciation System (ADS) An Alternative Depreciation System (ADS) is an IRS-prescribed method for depreciating business assets over longer recovery periods using generally straight-line depreciation. ADS spreads deductions more evenly over an asset’s useful life than the General Depreciation System (GDS), affecting taxable income, cash flow, and long-term financial planning. How ADS works Depreciation lets…

Altcoin — What It Is and Why It Matters Key takeaways * Altcoins are any cryptocurrencies other than Bitcoin (some definitions also exclude Ethereum). * They are created to add features, address perceived limitations, or serve specific use cases that Bitcoin does not. * Major altcoin categories include payment tokens, stablecoins, utility tokens, security tokens,…

Alphabet Stock What is alphabet stock? Alphabet stock refers to a distinct class of common shares that a company issues and labels with letters (for example, Class A, Class B). These lettered classes can be tied to a particular subsidiary or simply represent a different class of common stock within the same company. Alphabet shares…

Alpha: Measuring Investment Outperformance What is alpha? Alpha (α) quantifies an investment’s performance relative to a benchmark, showing the excess (or shortfall) return after accounting for risk. A positive alpha indicates outperformance versus the chosen benchmark; a negative alpha indicates underperformance. Alpha is commonly used alongside beta (β), which measures systematic market risk or volatility….

Allowance for Doubtful Accounts The allowance for doubtful accounts is a contra-asset on the balance sheet that represents management’s estimate of accounts receivable (AR) unlikely to be collected. It lets companies recognize expected bad debts in the same period as the related sales, supporting accurate profit measurement and compliance with the matching principle. Key takeaways…

Allowance for Credit Losses Definition Allowance for credit losses is an accounting estimate of the portion of accounts receivable a company does not expect to collect. It is recorded as a contra-asset on the balance sheet to reflect expected uncollectible amounts and to prevent overstating assets and income. Why it matters Protects the accuracy of…

Allowance for Bad Debt: Definition and Overview An allowance for bad debt (also called allowance for doubtful accounts) is a contra-asset valuation account used to estimate the portion of a company’s accounts receivable that will not be collected. It reduces the gross receivable balance to a realistic net realizable value and matches expected credit losses…

Key Points * An allotment is the systematic distribution or assignment of shares or other resources by a company. * In finance, allotment most often refers to how shares are allocated during an IPO and other issuances. * Companies issue new shares to raise capital, pay debt, fund growth or acquisitions, or reward stakeholders. *…

Allocational Efficiency Allocational efficiency (also called allocative efficiency) describes a market condition in which resources are distributed to produce the combination of goods and services that best matches society’s preferences. At this point, the marginal benefit to society of a good equals its marginal cost of production. Key points Occurs where market demand and supply…