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RISK PREMIUM

As a rule of thumb in investing, the more risk you take the higher the return you should expect. The benchmark for this is usually a medium dated government security issued by a stable country such as the UK or the US. Since the default risk is practically zero the yield available on these securities …

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RIGHTS ISSUE

This is where a company that is already listed on a public market makes a fresh issue of shares in a bid to raise more finance from its shareholders. The term comes from the fact that in the UK an existing shareholder has a pre-emptive right to buy any new shares that are offered before …

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RETURN ON CAPITAL EMPLOYED

Also known as ROCE this is the total return available from a firm. There are several ways to calculate it – a common one is to express profits before interest and tax (PBIT or EBIT) as a percentage of total debt and equity capital employed. So if PBIT is say £40m and total capital employed …

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RETAIL SERVICE PROVIDER

This is a firm that acts as a link between a retail broker and the London Stock Exchange where a broker does not use the exchange’s direct market access option to place and execute trades directly via the LSE order book. READ MORE

RESEARCH ANALYST

These are professionals paid to give their opinions on securities. Different analysts use varying language but in essence their job is to provide the analysis that helps a client to decide whether they should “buy”, “hold” or “sell” a stock. They may be employed by a number of different firms, ranging from banks to brokerages, …

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REDEMPTION YIELD

This is the total annual rate of return on a fixed income security that takes into account income and any capital gain or loss arising before it matures. Let’s say a 5% bond trading at £105 has a remaining life of 5 years until maturity. We could estimate the annual yield to maturity as the …

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REAL YIELD

This is the gross, or “headline” yield on an investment, adjusted for inflation.. So, in simple terms, if the gross yield is 4% and inflation is running at 3%, the real yield is 1% (4-3). This matters because otherwise a quoted income yield won’t take account of the changing price of goods and services – …

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RDR

This is short for Retail Distribution Review. An initiative from the regulator, at the time the FSA, this is aimed at making the retail financial services market more professional, transparent and fairer.. For example it imposes new qualification benchmarks for anyone giving financial advice and requires advisers to be clearer about how charges work. READ …

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RAINY DAY FUNDS

This is money that all of us should set to one side in a liquid home, such as a bank account. The aim is to have a fund available should we need to fund an unexpected short-term problem, such as losing our job, getting sick or having to repair a leaky roof. The amount will …

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