Financial terms

Capital Gains Tax ( CGT)

You can make a “capital gain” if you sell assets such as shares or property for more than they cost. Each tax year you are allowed to make gains up to a certain amount without paying any tax.

Certificates of deposit

These are money market investments that are generally issued by banks against a security. A certificate of deposit usually pays interest (which can vary) and entitles the bearer to receive a set interest rate up until a set maturity date and can be issued in any currency or denomination.

Collective investments

These pool money from many different investors into one fund, such as a unit trust, open ended investment company ( OEIC) or investment trust.

Compound interest

In, for example, a deposit account. This is where interest is added to both capital and the accrued interest from time to time. The longer a customer leaves an investment, the more advantage they can take of compound interest. For example, if in year one a customer is paid 10 percent on his/her

ZWL$ 100 investment, at the end of the year the investment is worth ZWL$ 110. In year two, with compound interest taken into account, the customer now earns 10 percent on ZWL$ 110, giving ZWL$ 121 at the end of the year.

Consumer Prices Index ( CPI)

Measures the prices of a fixed “basket of goods” bought by a typical consumer. Used as a measurement of inflation

Coupon The interest rate applied to the value of a corporate bond.

Default risk

This is the possibility that the issuer of a bond will be unable to make payments when they are due.

Duration

A measure of the sensitivity of the price of a bond to changes and to interest rates. Similarly, the duration of a bond fund measures the sensitivity of all the bonds in that fund to movements in interest rates. It is a widely used measure of how risky a bond or a portfolio of bonds is.

Credit rating

Formal evaluation of a company’s loan-repayment history and current ability to repay its financial liabilities. Awarded by agencies such as Standard & Poor’s and Moody’s. AAA grade is the highest.