Financial Terms
Annuity factor

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Definition of Annuity factor

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Annuity factor

Present value of $1 paid for each of t periods.

annuity factor

Present value of an annuity of $1 per period.

Related Terms:

ADF (annuity discount factor)

the present value of a finite stream of cash flows for every beginning $1 of cash flow.

Amortization factor

The pool factor implied by the scheduled amortization assuming no prepayemts.


A regular periodic payment made by an insurance company to a policyholder for a specified period
of time.


A series of payments or deposits of equal size spaced evenly over
a specified period of time


A series of payments over a period of time. The payments are usually
in equal amounts and usually at regular intervals such as quarterly,
semi-annually, or annually.


Equally spaced level stream of cash flows.

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A contract which provides an income for a specified period of time, such as a certain number of years or for life. An annuity is like a life insurance policy in reverse. The purchaser gives the life insurance company a lump sum of money and the life insurance company pays the purchaser a regular income, usually monthly.


Periodic payments made to an individual under the terms of the policy.

Annuity due

An annuity with n payments, wherein the first payment is made at time t = 0 and the last
payment is made at time t = n - 1.

Annuity Due

annuity where the payments are to be made at the beginning of
each period

annuity due

a series of equal cash flows being received or paid at the beginning of a period

annuity due

Level stream of cash flows starting immediately.

Annuity in arrears

An annuity with a first payment on full period hence, rather than immediately.

Annuity Period

The time between each payment under an annuity.

Back To Back Annuity

This term refers to the simultaneous issue of a life annuity with a non-guaranteed period and a guaranteed life insurance policy [usually whole life or term to 100]. The face value of the life insurance would be the same amount that was used to purchase the annuity. This combination of life annuity providing the highest payout of all types of annuities, along with a guaranteed life insurance policy allowed an uninsurable person to convert his/her RRSP into the best choice of annuity and guarantee that upon his/her death, the full value of the annuity would be paid tax free through the life insurance policy to his family members. However, in the early 1990's, the Federal tax authorities put a stop to the issuing of standard life rates to rated or uninsurable applicants. Insuring a life annuity in this manner is still an excellent way to provide guaranteed tax free funds to family members but the application for the annuity and the application for the life insurance are separate transactions and today, most likely conducted through two different insurance companies so that there is no suspicion of preferential treatment given to the life insurance application.

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Conversion factors

Rules set by the Chicago Board of Trade for determining the invoice price of each
acceptable deliverable Treasury issue against the Treasury Bond futures contract.

critical success factors (CSF)

any item (such as quality, customer
service, efficiency, cost control, or responsiveness
to change) so important that, without it, the organization
would cease to exist

Deferred Annuity

An annuity providing for income payments to commence at a specified future time.

Deferred nominal life annuity

A monthly fixed-dollar payment beginning at retirement age. It is nominal
because the payment is fixed in dollar amount at any particular time, up to and including retirement.

Discount factor

Present value of $1 received at a stated future date.

discount factor

Present value of a $1 future payment.

Equivalent annual annuity

The equivalent amount per year for some number of years that has a present
value equal to a given amount.


A financial institution that buys a firm's accounts receivables and collects the debt.


An agent who buys and sells goods on behalf of others for a commission.

Factor analysis

A statistical procedure that seeks to explain a certain phenomenon, such as the return on a
common stock, in terms of the behavior of a set of predictive factors.

Factor model

A way of decomposing the factors that influence a security's rate of return into common and
firm-specific influences.

Factor of Production

A resource used to produce a good or service. The main macroeconomic factors of production are capital and labor.

Factor portfolio

A well-diversified portfolio constructed to have a beta of 1.0 on one factor and a beta of
zero on any other factors.


Sale of a firm's accounts receivable to a financial institution known as a factor.


The sale of accounts receivable to a third party, with the third party bearing
the risk of loss if the accounts receivable cannot be collected.


The discounting, or sale at a discount, of receivables on a nonrecourse, notification
basis. The purchaser of the accounts receivable, the factor, assumes full risk of collection and
credit losses, without recourse to the firms discounting the receivables. Customers are notified to
remit directly to the factor.


Type of financial service whereby a firm sells or transfers title to its accounts receivable to a factoring company, which then acts as principal, not as agent.

Factory overhead

All the costs incurred during the manufacturing process, minus the
costs of direct labor and materials.

Guaranteed Interest Annuity (GIA)

Interest bearing investment with fixed rate and term.

Individual Retirement Annuity

An IRA comprised of an annuity that is managed
through and paid out by a life insurance company.

Interest Factor

Numbers found in compound interest and annuity tables. Usually called the FVIF or PVIF.

Limiting factor

The production resource that, as a result of scarce resources, limits the production of goods
or services, i.e. a bottleneck.

Maturity factoring

factoring arrangement that provides collection and insurance of accounts receivable.

Multifactor CAPM

A version of the capital asset pricing model derived by Merton that includes extramarket
sources of risk referred to as factor.

Net benefit to leverage factor

A linear approximation of a factor, T*, that enables one to operationalize the
total impact of leverage on firm value in the capital market imperfections view of capital structure.

Normal annuity form

The manner in which retirement benefits are paid out.

Old-line factoring

factoring arrangement that provides collection, insurance, and finance for accounts receivable.

One-factor APT

A special case of the arbitrage pricing theory that is derived from the one-factor model by
using diversification and arbitrage. It shows the expected return on any risky asset is a linear function of a
single factor.

Ordinary Annuity

An annuity where the payments are made at the end of each

ordinary annuity

a series of equal cash flows being received
or paid at the end of a period

Pool factor

The outstanding principal balance divided by the original principal balance with the result
expressed as a decimal. Pool factors are published monthly by the Bond Buyer newspaper for Ginnie Mae,
Fannie Mae, and Freddie Mac(Federal Home Loan Mortgage Corporation) MBSs.

PPF (periodic perpetuity factor)

a generalization formula invented by Abrams that is the present value of regular but noncontiguous cash flows that have constant growth to perpetuity.

Present value factor

factor used to calculate an estimate of the present value of an amount to be received in
a future period.

RAMs (Reverse-annuity mortgages)

Mortgages in which the bank makes a loan for an amount equal to a
percentage of the appraisal value of the home. The loan is then paid to the homeowner in the form of an

Reported factor

The pool factor as reported by the bond buyer for a given amortization period.

Scrap factor

An anticipated loss percentage included in the bill of material and
used to order extra materials for a production run, in anticipation of scrap losses.

Shrinkage factor

The expected loss of some proportion of an item during the
production process, expressed as a percentage.

Single factor model

A model of security returns that acknowledges only one common factor.
See: factor model.

Single-premium deferred annuity

An insurance policy bought by the sponsor of a pension plan for a single
premium. In return, the insurance company agrees to make lifelong payments to the employee (the
policyholder) when that employee retires.

Two-factor model

Black's zero-beta version of the capital asset pricing model.

Variable Annuity

A form of annuity policy under which the amount of each benefit is not guaranteed or specified. The amounts fluctuate according to the earnings of a separate investment account.







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