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| Annual percentage yield |
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| The effective, or true, annual rate of return. The APY is the rate actually earned or paid in one year, taking into account the effect of compounding. The APY is calculated by taking one plus the periodic rate and raising it to the number of periods in a year. For example, a 1% per month rate has an APY of 12.68% (1.01^12 -1). Annual rate of return There are many ways of calculating the annual rate of return. If the rate of return is calculated on a monthly basis, we sometimes multiply this by 12 to express an annual rate of return. This is often called the annual percentage rate (APR). The annual percentage yield (APY), includes the effect of compounding interest. |
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| Annualised Return |
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| The percentage movement in the value of the shares or units in a fund over a period of time (i.e. the CUMULATIVE RETURN), adjusted to an annualised (or compounded) basis, rather than being a simple percentage change over the total period under review. A simple example would be a fund increasing in value in a two-year period from $1000 per share to $1250 per share. The increase of $250 per share in the two-year period would represent a 25% ($250/$1000) CUMULATIVE RETURN, but would be 11.8% per annum on an ANNUALISED RETURN basis (a two-year compound return of 11.8% equates to an cumulative return of 25% over the same period [$1000*(1.118^2) = $1250]). |
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| Annuity |
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| A guaranteed income bought by a capital sum. |
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| Arbitrage |
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| Taking advantage of small price differences (of securities or goods) in different markets to make a profit. It involves buying something to sell in another market or at another time. |
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| Arbitrageur |
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| Traditionally someone who indulges in arbitrage of any sort; now a Wall Street term for a professional investor who specialises in issues during takeovers. |
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