Free Series 7 Glossary — 50 Terms in Plain English

The first 50 terms from our full Series 7 glossary, defined so a beginner actually gets them. Type to filter:

American Depositary Receipt (ADR)

A negotiable certificate traded in U.S. markets that represents shares of a foreign company, letting Americans invest abroad in dollars. Trap: holders face currency risk and usually cannot vote.

Common Stock

An ownership share in a corporation that carries voting rights and the potential for dividends and growth, but sits last in line if the company is liquidated.

Cumulative Preferred

Preferred stock where any skipped dividends pile up and must be paid in full before common shareholders see a dime. Trap: missed dividends are owed, not forgiven.

Dividend

A distribution of company profits to shareholders, paid in cash, additional stock, or occasionally property, only when declared by the board of directors.

Ex-Dividend Date

The first day a stock trades without the right to the upcoming dividend; for regular-way trades under T+1 settlement, the ex-dividend date is the same business day as the record date.

Par Value

An arbitrary accounting value printed on a stock; for common stock it has little real meaning, but for preferred it sets the dollar basis for the stated dividend rate.

Preferred Stock

An equity security that pays a fixed dividend and ranks ahead of common stock for dividends and in liquidation, but usually carries no voting rights.

Restricted Stock

Unregistered shares acquired privately, such as through a private placement, that cannot be freely resold until holding-period and volume conditions under Rule 144 are met.

Rights (Preemptive Rights)

Short-term privileges letting existing shareholders buy new shares at a discount before the public, protecting them from ownership dilution. Trap: rights are short-lived, often a few weeks.

Statutory vs. Cumulative Voting

Two voting methods: statutory splits votes evenly across each board seat, while cumulative lets shareholders pile all votes onto one candidate, which favors smaller investors.

Treasury Stock

Shares the company issued and later bought back; they have no voting rights and pay no dividends while held by the company.

Warrant

A long-term certificate giving the holder the right to buy stock at a set price, usually issued above current market and often attached to bonds as a sweetener.

Accrued Interest

Interest a bond has earned but not yet paid, which the buyer pays the seller at settlement; corporate and muni bonds use a 30/360-day count, governments use actual days.

Banker's Acceptance (BA)

A short-term money-market instrument used to finance international trade, representing a bank's guarantee to pay at a future date.

Bond

A loan from an investor to an issuer that promises periodic interest and return of the face amount at maturity. The issuer is a debtor, not a part-owner relationship.

Callable Bond

A bond the issuer can redeem early, usually when rates drop. Trap: call risk means investors may have to reinvest at lower yields, so callable bonds offer higher coupons.

Convertible Bond

A corporate bond that can be exchanged for a set number of the issuer's common shares, blending fixed income with equity upside.

Coupon Rate

The fixed annual interest a bond pays, stated as a percentage of par, regardless of what the bond currently trades for.

Current Yield

A bond's annual coupon divided by its current market price, showing income return but ignoring gains or losses from price versus par.

Debenture

An unsecured corporate bond backed only by the issuer's general credit and promise to pay, not by specific collateral.

Discount and Premium

A bond trades at a discount when priced below par (yields rise) and at a premium when above par (yields fall). Trap: as rates rise, prices fall, an inverse relationship.

TIPS

Treasury Inflation-Protected Securities whose principal adjusts with the Consumer Price Index, shielding investors from inflation eroding their return.

Treasury Bills, Notes, and Bonds

U.S. government debt: bills mature in one year or less and are sold at a discount, notes run 2 to 10 years, and bonds run beyond 10 years, all backed by full faith and credit.

Yield to Maturity (YTM)

The total annualized return an investor earns holding a bond to maturity, factoring in coupon payments plus any discount or premium to par.

529 Plan

A municipal-fund security offering tax-advantaged savings for education expenses, where earnings grow tax-free if used for qualified costs.

Bond Anticipation Note (BAN)

A short-term municipal note issued to fund a project temporarily, to be repaid from proceeds of a future long-term bond sale.

Debt Service

The total principal and interest a municipality must pay on its outstanding bonds over a period, a key measure of repayment capacity.

Double-Barreled Bond

A municipal bond backed by both a specific revenue source and the issuer's taxing power, giving investors two layers of protection.

General Obligation Bond (GO)

A municipal bond backed by the issuer's full taxing power, requiring voter approval and carrying lower default risk than revenue bonds.

Industrial Development Bond (IDB)

A municipal revenue bond issued to finance facilities for a private company, repaid from that company's lease payments, making the corporation's credit the key risk.

MSRB

The Municipal Securities Rulemaking Board, which writes rules for municipal dealers but relies on FINRA and the SEC for enforcement. Trap: the MSRB does not regulate issuers.

Net Direct Debt

A municipality's general obligation debt plus short-term debt, minus self-supporting debt and sinking funds, used to gauge GO credit quality.

Official Statement

The municipal disclosure document, similar to a prospectus, that details the bond's terms, finances, and risks for investors.

Revenue Bond

A municipal bond repaid only from the income of a specific project, such as a toll road or stadium, with no taxing-power backing.

Tax-Equivalent Yield

The pretax yield a taxable bond must offer to match a muni's tax-free yield, found by dividing the muni yield by (1 minus the investor's tax bracket).

Tax-Exempt Interest

Interest on municipal bonds that is generally free from federal income tax, and from state tax if the holder lives in the issuing state. Trap: capital gains on munis are still taxable.

Breakeven

The stock price at which an option strategy neither gains nor loses; for a long call it is strike plus premium, for a long put it is strike minus premium.

Call Option

A contract giving the buyer the right to purchase 100 shares at the strike price before expiration; buyers are bullish, sellers are bearish or neutral.

Covered Call

Selling a call against stock you already own to generate income; risk is limited because you can deliver the shares if assigned.

In/At/Out of the Money

An option is in the money when it has intrinsic value (exercise yields a better price than the market), at the money when the stock equals the strike, and out of the money when it has no intrinsic value. Trap: in the money is not the same as profitable, since the premium is ignored.

Intrinsic Value

The in-the-money amount of an option: how far the stock price is favorably past the strike. An out-of-the-money option has zero intrinsic value.

Options Clearing Corporation (OCC)

The entity that issues and guarantees all listed options, acting as the counterparty to every trade so contracts are honored.

Premium

The price paid for an option, made up of intrinsic value plus time value, quoted per share but covering 100 shares per contract.

Protective Put

Buying a put on stock you own to lock in a minimum sale price, acting like insurance against a drop in the share price.

Put Option

A contract giving the buyer the right to sell 100 shares at the strike price before expiration; buyers are bearish, sellers are bullish or neutral.

Spread

Buying one option and selling another of the same type to limit both risk and reward, defined by differing strikes or expirations.

Straddle

Buying (or selling) a call and a put with the same strike and expiration; a long straddle profits from a big move in either direction.

Strike Price

The fixed price at which an option holder may buy (call) or sell (put) the underlying stock if the option is exercised.

12b-1 Fee

An annual fee deducted from fund assets to cover distribution and marketing costs, common in Class C shares and disclosed in the expense ratio.

Accumulation vs. Annuity Units

Variable annuity values build as accumulation units during the saving phase and convert to annuity units, which determine payout, once income begins.

The full glossary

Every term the Series 7 tests — organized by unit, exam traps flagged: