Investment Glossary

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Earnings

income of a business. Earnings usually refers to after-tax income but may occasionally be used synonymously with before-tax income or even revenues.

Earnings multiple

See Price Earnings Ratio

Earnings per share (EPS)

net income for a period, divided by the average number of common shares outstanding during that period. EPS is the amount of reported income, on a per-share basis, that a firm has available to pay dividends or reinvest.

Efficient Frontier

theoretical plot on a risk - return chart upon which all efficient portfolios lie. Portfolios below the curve are less than optimal. Portfolios lying above the curve are theoretically not attainable.

Efficient market

a market in which security prices reflect all available information and adjust instantly to any new information. If the security markets are truly efficient, it is not possible for an investor consistently to outperform share market averages such as the Standard & Poor's 500 except by acquiring more risky securities. Significant evidence supports the premise that the security markets are very efficient. - Also called market efficiency. - See also Random Walk Hypothesis..

Efficient portfolio

a combination of investments with the highest possible expected return at a particular risk level or the lowest possible risk for a given expected return. See also - Optimal Portfolio; Efficient Frontier

Entry fee

See Application Fee

Equities

Another name for company shares.

Ethical fund

an investment fund that limits investment alternatives to securities of firms meeting certain social standards. For example, an ethical fund might exclude securities of companies that are known to practice discrimination, that operate in certain countries, or that produce specific products (eg those having to do with nuclear weapons or nuclear power plants).

Ex-ante

(literally: 'before the fact') a term used for expected returns (or risk and other investment data).

Ex-dividend

used to refer to a share no longer carrying the right to the next dividend payment because the settlement date occurs after the record date determining the holders who will receive the dividend. If a common share goes ed-dividend on May 31, an investor purchasing on or after that date will not receive the next dividend.

Ex-Post

(literally: 'after the fact') a term used for historical returns (or risk and other investment data).

Ex-rights

used to describe a share that trades without giving the shareholder the privilege to receive rights to buy shares of a new share issue. Because new shares are sold at below market price to rights holders, the rights have value. Thus, a share trading ex-rights is worth less than the same share with rights attached.

Exercise price

the dollar price at which the owner of a warrant or an option can force the writer to sell an asset (in the case of a call option or warrant) or buy an asset (in the case of a put option). The exercise price is set at the time the option is issued and, except for unusual instances including warrants, remains constant until the option expires. Sometimes called the strike price.

Expected rate of return

the rate of return expected on an asset or a portfolio. The expected rate of return on a single asset is equal to the sum of each possible rate of return multiplied by the respective probability of earning each return. For example, if a security has a 20% probability of providing a 10% rate of return, a 50% probability of providing a 12% rate of return, and a 25% probability of providing a 14% rate of return, the expected rate of return is (.25)(10%) + (.50)(12%)+(.25)(14%), or 12%.

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