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Meaning / Definition of

Unit Investment Trust (UIT)

Categories: Finance,

A UIT may be a fixed portfolio of bonds with specific maturity dates, a portfolio of income-producing stocks, or a portfolio of all of the securities included in a particular index. Examples of the latter include the DIAMONDs Trust (DIA), which mirrors the composition of the dow jones industrial average (DJIA), and Standard & Poor's depositary receipts (SPDR), which mirrors the Standard & Poor's 500-stock index (s&p 500). Index UITs are also described as exchange traded funds (ETFs).UITs resemble mutual funds in the sense that they offer the opportunity to diversify your portfolio without having to purchase a number of separate securities. You buy units, rather than shares, of the trust, usually through a broker. However, UITs trade more like stocks than mutual funds in the sense that you sell in the secondary market rather than redeeming your holding by selling your units back to the issuing fund. Further, the price of a UIT fluctuates constantly throughout the trading day, just as the price of an individual stock does, rather than being repriced only once a day, after the close of trading. As a result some UITs, though not index-based UITs such as DIAMONDS or SPDRs, trade at prices higher or lower than their net asset value (NAV). One additional difference is that many UITs have maturity dates, when the trust expires, while mutual funds do not. A fund may be closed for other reasons, but not because of a predetermined expiration date.

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Definition / Meaning of

Price-to-earnings Ratio (P/E)

Categories: Finance,

The price-to-earnings ratio (P/E) is the relationship between a company's earnings and its share price, and is calculated by dividing the current price per share by the earnings per share.A stock's P/E, also known as its multiple, gives you a sense of what you are paying for a stock in relation to its earning power. For example, a stock with a P/E of 30 is trading at a price 30 times higher than its earnings, while one with a P/E of 15 is trading at 15 times its earnings. If earnings falter, there is usually a sell-off, which drives the price down. But if the company is successful, the share price and the P/E can climb even higher. Similarly, a low p/e can be the sign of an undervalued company whose price hasn't caught up with its earnings potential. Or, conversely, a clue that the market considers the company a poor investment risk.Stocks with higher P/Es are typical of companies that are expected to grow rapidly in value. They're often more volatile than stocks with lower P/Es because it can be more difficult for the company's earnings to satisfy investor expectations.The P/E can be calculated two ways. A trailing p/e, the figure reported in newspaper stock tables, uses earnings for the last four quarters. A forward p/e generally uses earnings for the past two quarters and an analyst's projection for the coming two.

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