See: Secondary Market

Effective Debt
Total debt owed by a firm.

See: Debt

Effective Rate
Yield on a debt instrument that is calculated by using the purchase price, the coupon rate, the number of days between interest payments, and the length of time until maturity. Because these other factors are considered in determining the yield, the effective rate represents a more accurate yield than the coupon rate.

See: Coupon Rate; Debt Instrument; Rate Of Return

Effective Sale
A security's round lot price that determines the selling price for the next odd lot. The additional amount above (buying) or below (selling) the round lot's price is the "odd-lot differential." For example, if the last round lot price is 10, the odd-lot price would be at least 10 1/8.

See: Odd Lot; Odd Lot Differential; Round Lot

Efficient Market Theory
Philosophy that in a free market all investors' knowledge and expectations are already reflected in the market and the stock's price. Thus, it is not feasible to outperform the market. The theory also suggests that if investors randomly select stocks from a newspaper's stock listings, they would have as good a chance of outperforming the market as any professional investor.

See: Inefficiency In The Market

Efficient Portfolio
Portfolio with a maximum expected return for any specific risk level, or a minimum risk level for any specific expected return.

See: Required Rate Of Return; Return

EFP (Exchange for Physical Program)
A trading technique involving index futures and the stocks composing the index. Complex computer programs show deviations in the spread between the futures and the stocks. The trader attempts to profit through arbitrage--buying the index future and selling the stocks short, or vice versa. As the spread returns to its norm, the positions are closed out at a profit.

See: Arbitrage; Index; Index Arbitrage

Either/Or Order
An order that involves entry of a limit order and a stop order on the same ticket for the same security at different prices--also called an "alternative order." The order is either to buy or to sell, never both. In an either/or buy limit/buy stop order, for example, the buy limit is below the current price and the buy stop is above. The execution of the buy limit cancels the buy stop and vice versa. To illustrate, if a stock is trading at 32, an investor may place an order to either buy at 30 or 33 stop. If the price rises to 33 (or above), the stop is chosen--the security is purchased at the market and the limit is canceled. If the price falls to 30, the limit is executed and the stop is canceled. If there is a partial execution of one, the number of shares executed is automatically canceled from the other.

An either/or order is used by an investor who is uneasy about a stock's price movement and wants to protect an interest or position if the price fluctuates in an unexpected manner.

See: Limit Order; Market Order; Orders; Stop Order

Elasticity of Demand
Consumers' receptiveness to price changes. As the price of luxury items increase, demand for items such as luxury cars and stereo systems usually decline because these goods are not essential and can be delayed. However, for inelastic items such as food and shelter, if the price rises, the need still exists and consumers will continue to make these purchases.

See: Elasticity Of Supply; Equilibrium Price

Elasticity of Supply
Sensitivity of production to price changes. As prices increase, production supply rises (e.g., luxury cars) because the demand for such items decreases. If the production supply does not increase, the goods are considered to be inelastic (e.g., food).

See: Elasticity Of Demand; Equilibrium Price

Eleven Bond Index
The average yield of eleven general obligation municipal bonds with 20 year maturities. The eleven bonds are taken from the twenty bonds within the Twenty Bond Index. The yield is computed Thursday afternoons and is published every Friday in the "Daily Bond Buyer."

See: Daily Bond Buyer

Eligible Paper
Negotiable instruments such as commercial paper, drafts, and banker's acceptances that a bank obtains at a discount and in which the Federal Reserve Bank will accept for rediscount.

See: Commercial Paper

Employee Retirement Income Security Act (ERISA)
Federal law passed in 1974 that regulates the establishment, management, operation, and funding of most non-government pension and benefit plans.

See: Profit Sharing Retirement Plan

Employee Stock Ownership Plan (ESOP)
A plan that encourages employees to purchase stock of their employer. By participating in the plan, employees are able to partake in the company's management.