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Glossary: N - P

National Association of Securities Dealers Automated Quotations (NASDAQ): NASDAQ is a computerized system that facilitates trading and provides current price quotes for the most actively traded over-the-counter (OTC) securities.

Net Income: Subtracting total costs, expenses, and taxes from total revenue results in the net income.

Net Worth: The amount of asset value exceeding total liabilities is referred to as net worth.

New York Stock Exchange (NYSE):
Also called The Big Board and The Exchange, the NYSE is the oldest and largest stock exchange in the US, listing the country's largest corporations. Memberships are sold to brokers, who buy and sell stocks on the floor of the exchange.

Noncontributory Retirement Plan: A noncontributory retirement plan is a pension plan that is funded only with employer contributions, requiring no employee contributions.

Nonforfeitable: Upon vesting, a benefit of an employee benefit plan becomes nonforfeitable and, thus, payable upon any occurrence listed in the employee contract. Some benefits may be conferred immediately or on a deferred basis.

Nonqualified Plan: A nonqualified plan is a retirement or employee benefit plan that does not meet the requirements of Section 401(a) under the Internal Revenue Code and, therefore, is not eligible for favorable tax treatment.

Notary Public: A notary public is an officer of the public that can authenticate signatories on documents and take depositions or oaths. A state or jurisdiction may authorize an applicant to certify specific documents usually for a term of years. Banks, insurance agencies, legal offices, and government buildings often have persons who are on staff.

Offering Price: In terms of investing, the offering price is the per-share price at which a stock or mutual fund is offered to the public. Companies going public for the first time will issue shares of stock at an offering price, as will companies who are issuing new shares. The market price, a security's most recent price, may be more or less than the offering price. With no-load funds (mutual funds that do not charge sales commissions, the offering price is the same as the initial market price. With load funds (mutual funds that charge sales commissions), a sales charge is added to the market price to reach the offering price. 

Old-Age, Survivors, and Disability Insurance (OASDI): OASDI, also known as Social Security, is a comprehensive federal benefits program that includes retirement benefits, disability income, veteran's pension, public housing, and even the food stamp program. The Social Security tax, which is levied on all self-employed and employed workers, is used to fund the program.

Option: An option gives the buyer the right, but not the obligation, to buy or sell a security at a set price on or before a given date. Investors, not companies, issue options. Investors who purchase "call" options bet the security will be worth more than the price set by the option (the strike price), plus the price they paid for the option itself. Buyers of "put" options bet the security's price will go down below the price set by the option.

Ordinary Income: Income is defined as ordinary if it is derived from normal business activities, such as wages and salary, as distinguished from capital gains earned from the sale of assets.

Over-The-Counter (OTC): A security is considered over-the-counter if it traded in some other context than on a formal exchange, such as the NYSE, TXS, AMEX, etc. Also, OTC refers to a market where transactions are conducted among security dealers over a network of telephone and computer lines, rather than on the floor of an exchange.

Paid-Up Additions:
Paid-up additions refer to additional life insurance coverage that is typically purchased with policy dividends. Paid-up additions may have a cash value component in addition to a death benefit.

Par Value:
The par value refers to the face value of a stock or bond when issued. The par value may bear little relationship to a security's current market value.

A partnership is a contractual association between two or more individuals who share in the management and profitability of a business venture. If the agreement specifically contracts for only an investment obligation, the investor is a limited partner. If responsibilities include management or supervision of operations, the holder of that responsibility is a general partner. Partnerships employ general partners, while limited partners associate through securities transactions.

Past Due:
Most lenders allow a specified period after a due date during which payment can be made without penalty. Any amount owed that is not received by the end of this grace period is considered past due. When an account is past due, showing a balance that contains past due funds, the creditor may assess a late fee, or consider the account delinquent and report it to a credit reporting agency.

A patent is an official license granted by the Patent Office to issue exclusive right to an individual or business, for a specified period of time, for the production or sale of a specific invention, process, or design. The financialvalue of a patent is the future monetary returns from its economic worth.

A pension is an employer-provided qualified retirement plan. Examples of pension plans include defined benefit plans, profit sharing plans, bonus plans, employee stock ownership plans (ESOPs), thrift plans, target benefit plans, and money purchase plans.

Permanent Life Insurance:
Permanent life insurance is a life insurance policy that does not expire and combines a death benefit with a savings portion. This saving portion can build cash value, which can be borrowed against or withdrawn for cash needs. The two main types of permanent life policies are whole life and universal life.

PITI refers to the components of a mortgage payment: principal, interest, property taxes, and insurance. Principal is the money used to pay down the balance of the loan, interest is the charge you pay for the opportunity to borrow the money, taxes are the property taxes you pay as a homeowner, and insurance refers to both your property insurance and your private mortgage insurance. Residential mortgage lenders usually require evidence that homeowners have property and casualty insurance if they do not fund the insurance as part of their monthly payment.

Plan Administrator:
As designated in the insurance or retirement documents, plan administrators of employee benefit programs maintain government regulations and procedures, and confirm that all participating employees receive annual reports.

Plan Sponsor:
A plan sponsor refers to an employer who establishes and perpetuates a qualified employee benefit pension plan. Although ultimately responsible for plan administration, plan sponsors often use outside consultants, corporations, government agencies, or labor organizations to confirm the implementation of Internal Revenue Code regulations and guidelines in plan administration.

In terms of real estate mortgages, points quantify the initial fee charged by the lender, with each point being equal to 1% of the total principal of the loan. For example, on a $100,000 mortgage, four points would cost a borrower $4,000.

Policy: A policy is a legal written document that states the terms of an insurance contract.

Policy Dividend:A policy dividend refers to a refund of part of a life insurance premium that reflects the difference between the premium charged and the insurer's actual cost of providing coverage, if lower than previously anticipated.

Policy Exclusion: A policy exclusion is an item specifically not covered by an insurance policy.

Policy Loan:
A policy loan is a loan made by an insurance company, secured by the cash surrender value of a life insurance policy.

Policy Reserves:
Policy reserves refer to the funds that a state requires an insurer to hold in order to cover all policy obligations.

Policy Rider:
A policy rider is a provision that may be added to an insurance policy, at an additional cost, to increase or limit the benefits the policy otherwise provides.

Policyholder: The policyholder is the person or entity owning an insurance policy. The policyholder is usually the insured but may also be a spouse, business partner, partnership, or corporation.

Portability: Portability refers to the ability of an employee to keep benefits after employment ceases. With a mobile workforce in which employees move from one company to another, portability of employee benefits, especially insurance and retirement plans, is important. Concerns about pre-existing conditions or insurability, as well as vesting schedules of qualified pension plans, are critical factors to an employee who entertains a more lucrative employment opportunity elsewhere.

A portfolio is the combined security holdings of an individual investor or mutual fund. The objective of holding investments in a portfolio is to reduce risk through diversification.

Power of Attorney:
This legal document, drafted in accordance with state law, grants a person full or limited powers to perform specified acts or make decisions for another person in the event the grantor is unable to act on his or her own. The power terminates upon the disability of the conveyor, unless it is a "durable" power.

Preferred Stock:
Preferred stock is a security representing partial ownership, also called equity, in a corporation. Preferred stock does not confer voting rights, as does common stock, but takes precedence in claims against the company's profits and assets.

Premature or Early Distributions:
The Internal Revenue Code (IRC) levies penalties for certain distributions before the age of 59½ from qualified retirement plans. The IRC, however, provides some specific exceptions that qualify for premature or early distributions without penalty.

Premium: A premium is a periodic payment for an insurance policy.

Premium Loan: A premium loan is a loan made from an insurance policy to cover the premiums.

Prepayment: Prepayment is the ability to repay installment credit before it is due or to pay off a loan before its maturity date. Some loans, particularly mortgages, include prepayment clauses allowing you to repay them in advance of the regular schedule without a penalty.

Prepayment Penalty: On a loan without a prepayment clause, the fee a borrower pays for repaying all or part of the loan before it is due is a prepayment penalty.

Present Value: The present value is the amount a future sum of money is worth today given a specified rate of return. For example, an investment that earns 10% annually and can be redeemed for $1,000 in five years would have a present value of $620. In other words, $620 today will be worth $1,000 in five years at a 10% rate of return.

Price/Earnings Ratio (P/E):Also called the "multiple," the P/E ratio is calculated as a stock's price divided by its earnings per share. This ratio gives investors an idea of how much they are paying for a company's current earnings. For example, a stock selling for $30 a share with earnings per share of $2 has a P/E ratio of 15. In other words, the investor paid $15 for each $1 of earnings. Faster growing, or higher risk, companies generally have higher P/E ratios than slower growing, or less risky, firms.

Primary Beneficiary: The primary beneficiary is the named beneficiary who receives the proceeds of an insurance policy or annuity contract when the insured or annuitant dies.

Prime Rate:
The prime rate is a standardized short-term borrowing rate established by the Federal Reserve Board. Most banks use the prime rate and base a loan on the creditworthiness and collateral of bank customers (e.g., prime plus 1% or prime plus 2%).

The principal can refer to the original amount of money invested in a security, the face value of a bond, or the remaining amount owed on a loan, separate from interest. The term principal can also refer to the owner of a private company or the main party to a financial transaction.

Private Letter Ruling: Upon request, the Internal Revenue Service (IRS) may issue an interpretation of a tax situation in light of a particular individual's circumstances with a private letter ruling judgment. Private letter rulings are nonbinding and not to be seen as a precedent for individuals with seemingly similar circumstances.

Private Mortgage Insurance (PMI): Private mortgage insurance protects the lender in case of default. Lenders typically require borrowers to purchase PMI when the loan-to-value ratio is greater than 80%.

Profit and Loss Statement: Also known as an income statement, the profit and loss statement summarizes the revenues, costs, and expenses incurred during a specific time period. These records show the ability of a company to generate profit by increasing revenue and reducing costs.

Profit-Sharing Plan: A profit-sharing plan is a defined contribution plan in which employers allow employees to share in company profits. The employer's contribution, a percentage of profits generally based on an employee's earnings, may vary from year to year with no minimum required. Funds generally accumulate on a tax-deferred basis until the employee leaves the company or retires. An employee's retirement benefit depends on the amount in his or her account at retirement.

Prohibited Transaction:
In terms of Individual Retirement Accounts (IRAs), a prohibited transaction is one forbidden by the Internal Revenue Code. Examples include borrowing against an IRA, using an IRA as collateral, and investing IRA funds in collectibles.

Anything that has a value and is owned is termed property. It may be tangible or intangible (incorporeal), personal or public, or common.

A prospectus is an official document that must be provided (according to Securities and Exchange Commission (SEC) regulations) by the issuer to potential purchasers of a new securities issue. The reports within a prospectus provide information on the financial well being of the issuer and the specifics of the issue itself.
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