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Financial Terms | |
Alpha equation |
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Definition of Alpha equationAlpha equationThe alpha of a fund is determined as follows:
Related Terms:Accounting equationThe representation of the double-entry system of accounting such that assets are equal to liabilities plus capital. Accounting equationThe formula Assets = Liabilities + Equity. accounting equationAn equation that reflects the two-sided nature of a AlphaA measure of selection risk (also known as residual risk) of a mutual fund in relation to the market. A Beta equation (Mutual Funds)The beta of a fund is determined as follows: Beta equation (Stocks)The beta of a stock is determined as follows: Equation of ExchangeThe quantity theory equation Mv = PQ. ![]() Regression equationAn equation that describes the average relationship between a dependent variable and a "Soft" Capital Rationingcapital rationing that under certain circumstances can be violated or even viewed 12b-1 fundsMutual funds that do not charge an upfront or back-end commission, but instead take out up to Abnormal returnsPart of the return that is not due to systematic influences (market wide influences). In Absolute Right of ReturnGoods may be returned to the seller by the purchaser without restrictions. Accelerated cost recovery system (ACRS)Schedule of depreciation rates allowed for tax purposes. Accelerated depreciationAny depreciation method that produces larger deductions for depreciation in the accelerated depreciation(1) The estimated useful life of the fixed asset being depreciated is Accelerated depreciationAny of several methods that recognize an increased amount ![]() Accounting rate of return (ARR)A method of investment appraisal that measures accounting rate of return (ARR)the rate of earnings obtained on the average capital investment over the life of a capital project; computed as average annual profits divided by average investment; not based on cash flow Accounting systemA set of accounts that summarize the transactions of a business that have been recorded on source documents. Acquisition of assetsA merger or consolidation in which an acquirer purchases the selling firm's Assets. Active portfolio strategyA strategy that uses available information and forecasting techniques to seek a actual cost systema valuation method that uses actual direct Additional paid-in capitalAmounts in excess of the par value or stated value that have been paid by the public to acquire stock in the company; synonymous with capital in excess of par. Additional paid-in capitalAny payment received from investors for stock that exceeds additional paid-in capitalDifference between issue price and par value of stock. Also called capital surplus. Adjustable rate preferred stock (ARPS)Publicly traded issues that may be collateralized by mortgages and MBSs. After-tax real rate of returnMoney after-tax rate of return minus the inflation rate. ![]() Aggressive Capitalization Policiescapitalizing and reporting as Assets significant portions of Aggressive Cost CapitalizationCost capitalization that stretches the flexibility within generally All equity rateThe discount rate that reflects only the business risks of a project and abstracts from the Allocation base A measure of activity or volume such as labourhours, machine hours or volume of production AlphaA measure of selection risk (also known as residual risk) of a mutual fund in relation to the market. A Amortizing interest rate swapSwap in which the principal or national amount rises (falls) as interest rates Annual fund operating expensesFor investment companies, the management fee and "other expenses," Annual percentage rate (APR)The periodic rate times the number of periods in a year. For example, a 5% annual percentage rate (APR)Interest rate that is annualized using simple interest. annual returnThe fund return, for any 12-month period, including changes in unit value and the reinvestment of distributions, but not taking into account sales, redemption, distribution or other optional charges or income taxes payable by any unitholder that would reduce returns. Annualized holding period returnThe annual rate of return that when compounded t times, would have Arithmetic average (mean) rate of returnArithmetic mean return. Arithmetic mean returnAn average of the subperiod returns, calculated by summing the subperiod returns Asset/equity ratioThe ratio of total Assets to stockholder Equity. AssetsA firm's productive resources. ASSETSAnything of value that a company owns. AssetsThings that the business owns. AssetsItems owned by the company or expenses that have been paid for but have not been used up. Assets requirementsA common element of a financial plan that describes projected capital spending and the Auction rate preferred stock (ARPS)Floating rate preferred stock, the dividend on which is adjusted every authorized share capitalMaximum number of shares that the company is permitted to issue, as specified in the firm’s articles of incorporation. Automated storage/retrieval systemA racking system using automated systems Average accounting returnThe average project earnings after taxes and depreciation divided by the average Average cost of capitalA firm's required payout to the bondholders and to the stockholders expressed as a Average Propensity to ConsumeRatio of consumption to disposable income. See also marginal propensity to consume. Average rate of return (ARR)The ratio of the average cash inflow to the amount invested. Average tax rateTaxes as a fraction of income; total taxes divided by total taxable income. average tax rateTotal taxes owed divided by total income. Balanced fundAn investment company that invests in stocks and bonds. The same as a balanced mutual fund. Balanced mutual fundThis is a fund that buys common stock, preferred stock and bonds. The same as a Barbell strategyA strategy in which the maturities of the securities included in the portfolio are concentrated Base interest rateRelated: Benchmark interest rate. Basic business strategiesKey strategies a firm intends to pursue in carrying out its business plan. Benchmark interest rateAlso called the base interest rate, it is the minimum interest rate investors will BetaA measure of the riskiness of a specific security compared to the BetaThe price volatility of a financial instrument relative to the price betaSensitivity of a stock’s return to the return on the market Beta coefficientA measurement of the extent to which the returns on a given stock move with stock market. Beta equation (Mutual Funds)The beta of a fund is determined as follows: Beta equation (Stocks)The beta of a stock is determined as follows: Beta (Mutual Funds)The measure of a fund's or stocks risk in relation to the market. A beta of 0.7 means Beta riskRisk of a firm measured from the standpoint of an investor who holds a highly diversified portfolio. Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit CommitteesA committee formed in response to SEC chairman Arthur Levitt's initiative to improve the financial Book-entry securitiesThe Treasury and federal agencies are moving to a book-entry system in which securities are not represented by engraved pieces of paper but are maintained in computerized records at the book rate of returnAccounting income divided by book value. Book ReturnsBook yield is the investment income earned in a year on a portfolio of Assets purchased over a number of years and at different interest rates, divided by the book value of those Assets. Bottom-up equity management styleA management style that de-emphasizes the significance of economic Break-even payment rateThe prepayment rate of a MBS coupon that will produce the same CFY as that of Break-even tax rateThe tax rate at which a party to a prospective transaction is indifferent between entering Broker loan rateRelated: Call money rate. Bullet strategyA strategy in which a portfolio is constructed so that the maturities of its securities are highly business intelligence (BI) systema formal process for gathering and analyzing information and producing intelligence to meet decision making needs; requires information about Buy-and-hold strategyA passive investment strategy with no active buying and selling of stocks from the Call money rateAlso called the broker loan rate , the interest rate that banks charge brokers to finance CapitalMoney invested in a firm. CAPITALThe money, raised by selling stock or bonds or taking out loans, that you use to start, operate, and grow a business. CapitalThe shareholders’ investment in the business; the difference between the Assets and Liabilities capitalA very broad term rooted in economic theory and referring to CapitalThe investment by a company’s owners in a business, plus the impact of any Capitala) Physical capital: buildings, equipment, and any materials used to produce other goods and services in the future rather than being consumed today. CapitalExpenditures Purchases of productive long-lived Assets, in particular, items of property, CapitalAny asset or stock of Assets, financial or physical, capable of producing income. Capital accountNet result of public and private international investment and lending activities. Capital AccountThat part of the balance of payments accounts that records demands for and supplies of a currency arising from purchases or sales of Assets. Capital allocationdecision Allocation of invested funds between risk-free Assets versus the risky portfolio. capital assetan asset used to generate revenues or cost savings Capital assetA fixed asset, something that is expected to have long-term usage within Capital asset pricing model (CAPM)An economic theory that describes the relationship between risk and Capital Asset Pricing Model (CAPM)A model for estimating equilibrium rates of return and values of capital asset pricing model (CAPM)Theory of the relationship between risk and return which states that the expected risk Capital budgetA firm's set of planned capital expenditures. capital budgetmanagement’s plan for investments in longterm capital budgetList of planned investment projects. Capital budgetingThe process of choosing the firm's long-term capital Assets. capital budgetingRefers generally to analysis procedures for ranking Capital BudgetingThe process of ranking and selecting investment alternatives and capital budgetinga process of evaluating an entity’s proposed Capital budgetingThe series of steps one follows when justifying the decision to purchase capital budgeting decisionDecision as to which real Assets the firm should acquire. Capital Consumption AllowanceSee depreciation. Related to : financial, finance, business, accounting, payroll, inventory, investment, money, inventory control, stock trading, financial advisor, tax advisor, credit. |