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Convertible Bond |
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A bond that can be exchanged,
at the option of the holder, for a specific number
of shares of the company's preferred stock or common
stock. Convertibility affects the performance of
the bond in certain ways. First and foremost, convertible
bonds tend to have lower interest rates than non-convertibles
because they also accrue value as the price of the
underlying stock rises. In this way, convertible
bonds offer some of the benefits of both stocks
and bonds. Convertibles earn interest even when
the stock is trading down or sideways, but when
the stock prices rise, the value of the convertible
increases. Therefore, convertibles can offer protection
against a decline in stock price. Because they are
sold at a premium over the price of the stock, convertibles
should be expected to earn that premium back in
the first three or four years after purchase |
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Correlation |
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A standardised measure of the relative
movement between two variables, such as the price of a
fund and an index.The degree of correlation between two
variables is measured on a scale of –1 to +1. If
two variables move up or down together, they are positively
correlated. If they tend to move in opposite directions,
they are negatively correlated. |
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Coupon |
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Denotes the rate of interest on
a fixed interest security. A 10 per cent coupon pays interest
of 10 per cent a year on the nominal value of the stock. |
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Critical illness insurance
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Critical illness insurance is a
form of health insurance that provides a lump-sum payment
should you become seriously ill. |
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Cyclical Stock |
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The stock of a company which is
sensitive to business cycles and whose performance is
strongly tied to the overall economy. Cyclical companies
tend to make products or provide services that are in
lower
demand during downturns in the economy and higher demand
during upswings. Examples include the automobile, steel,
and housing industries. The stock price of a cyclical
company will often rise just before
an economic upturn begins, and fall just before a downturn
begins. Investors in cyclical stocks try to
make the largest gains by buying the stock at the bottom
of a business cycle, just before a turnaround
begins.Opposite of defensive stock. |
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