| Annual percentage rate (APR) | Interest rate is annualized using simple rather than compound interest.
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| Conditional tail expectation | Expectation of a random variable conditional on it falling below some threshold value. Often used as a measure of down-side risk.
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| Dividend yield | The percent rate of return provided by a stock's dividend payments.
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| Effective annual rate (EAR) | Interest rate is annualized using compound rather than simple interest.
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| Event tree | Depicts all possible sequences of events.
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| Excess return | Rate of return in excess of the risk-free rate.
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| Kurtosis | Measure of the fatness of the tails of a probability distribution. Indicates probability of observing extreme high or low values.
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| Lognormal distribution | The log of the variable has a normal (bell-shaped) distribution.
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| Lower partial standard deviation | Standard deviation computed using only the portion of the probability distribution below the mean of the variable.
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| Nominal interest rate | The interest rate in terms of nominal (not adjusted for purchasing power) dollars.
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| Normal distribution | Bell-shaped probability distribution that characterizes many natural phenomena.
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| Real interest rate | The excess of the interest rate over the inflation rate. The growth rate of purchasing power derived from an investment.
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| Risk-averse, risk-neutral, risk lover | A risk-averse investor will consider risky portfolios only if they provide compensation for risk via a risk premium. A risk-neutral investor finds the level of risk irrelevant and considers only the expected return of risk prospects. A risk lover is willing to accept lower expected returns on prospects with higher amounts of risk.
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| Risk premium | An expected return in excess of that on riskfree securities. The premium provides compensation for the risk of an investment.
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| Risk-free rate | The interest rate that can be earned with certainty.
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| Skew | Measure of the asymmetry of a probability distribution.
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| Value at risk | Measure of down-side risk. The loss that will be incurred in the event of an extreme adverse price change with some given, typically low, probability.
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