Definition of dual pricing arrangement

dual pricing arrangement

a transfer pricing system that allows
a selling division to record the transfer of goods or
services at one price (e.g., a market or negotiated market
price) and a buying division to record the transfer at another
price (e.g., a cost-based amount)

Administrative pricing rules

IRS rules used to allocate income on export sales to a foreign sales corporation.

Arbitrage Pricing Theory (APT)

An alternative model to the capital asset pricing model developed by
Stephen Ross and based purely on arbitrage arguments.

Arbitrage-free option-pricing models

Yield curve option-pricing models.

Asset pricing model

A model for determining the required rate of return on an asset.

Asset pricing model

A model, such as the Capital Asset pricing Model (CAPM), that determines the required
rate of return on a particular asset.

Binomial option pricing model

An option pricing model in which the underlying asset can take on only two
possible, discrete values in the next time period for each value that it can take on in the preceding time period.

Black-Scholes option-pricing model

A model for pricing call options based on arbitrage arguments that uses
the stock price, the exercise price, the risk-free interest rate, the time to expiration, and the standard deviation
of the stock return.

Capital asset pricing model (CAPM)

An economic theory that describes the relationship between risk and
expected return, and serves as a model for the pricing of risky securities. The CAPM asserts that the only risk
that is priced by rational investors is systematic risk, because that risk cannot be eliminated by diversification.
The CAPM says that the expected return of a security or a portfolio is equal to the rate on a risk-free security
plus a risk premium.

Cost company arrangement

arrangement whereby the shareholders of a project receive output free of
charge but agree to pay all operating and financing charges of the project.

Dual syndicate equity offering

An international equity placement where the offering is split into two
tranches - domestic and foreign - and each tranche is handled by a separate lead manager.

Dual-currency issues

Eurobonds that pay coupon interest in one currency but pay the principal in a different
currency.

Garmen-Kohlhagen option pricing model

A widely used model for pricing foreign currency options.

Pricing efficiency

Also called external efficiency, a market characteristic where prices at all times fully
reflect all available information that is relevant to the valuation of securities.

Regulatory pricing risk

Risk that arises when regulators restrict the premium rates that insurance companies
can charge.

Residuals

1) Parts of stock returns not explained by the explanatory variable (the market-index return). They
measure the impact of firm-specific events during a particular period.
2) Remainder cash flows generated by pool collateral and those needed to fund bonds supported by the collateral.

Residual assets

Assets that remain after sufficient assets are dedicated to meet all senior debtholder's claims in full.

Residual claim

Related: equity claim

Residual dividend approach

An approach that suggests that a firm pay dividends if and only if acceptable
investment opportunities for those funds are currently unavailable.

Residual losses

Lost wealth of the shareholders due to divergent behavior of the managers.

Residual method

A method of allocating the purchase price for the acquisition of another firm among the
acquired assets.

Residual risk

Related: unsystematic risk

Residual value

Usually refers to the value of a lessor's property at the time the lease expires.

Retail investors, individual investors

Small investors who commit capital for their personal account.

Target zone arrangement

A monetary system under which countries pledge to maintain their exchange rates
within a specific margin around agreed-upon, fixed central exchange rates.

Two-state option pricing model

An option pricing model in which the underlying asset can take on only two
possible (discrete) values in the next time period for each value it can take on in the preceding time period.
Also called the binomial option pricing model.

Underpricing

Issue of securities below their market value.

Yield curve option-pricing models

Models that can incorporate different volatility assumptions along the
yield curve, such as the Black-Derman-Toy model. Also called arbitrage-free option-pricing models.

Cost-plus pricing

A method of pricing in which a mark-up is added to the total product/service cost.

Residual income (RI)

The profit remaining after deducting from profit a notional cost of capital on the investment in a business or division of a business.

Target rate of return pricing

A method of pricing that estimates the desired return on investment to be achieved from the
fixed and working capital investment and includes that return in the price of a product/service.

Capital Asset Pricing Model (CAPM)

A model for estimating equilibrium rates of return and values of
assets in financial markets; uses beta as a measure of asset risk
relative to market risk

Residual Value

The value attributed to a company to represent all future cash flows
after the end of the forecast period

residual income

the profit earned by a responsibility center that exceeds an amount "charged" for funds committed to that center

capital asset pricing model (CAPM)

Theory of the relationship between risk and return which states that the expected risk
premium on any security equals its beta times the market risk premium.

residual income

Also called economic value added. Profit minus cost of capital employed.

underpricing

Issuing securities at an offering price set below the true value of the security.

Gradualism

A policy of decreasing the rate of growth of the money supply gradually over an extended period of time, so that inflation can adjust with smaller unemployment cost. Contrast with cold-turkey policy.

Individual Retirement Account

A personal savings account into which a defined
maximum amount may be contributed, and for which any resulting interest
is tax deferred.

Individual Retirement Annuity

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

Residual Value

Typically estimated based on the present value of the after-tax cash flows expected to be earned after the forecast period.

Individual Insurance

Insurance that is offered to individuals rather than groups.

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