Financial Terms
Equivalent annual benefit

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Definition of Equivalent annual benefit

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Equivalent annual benefit

The equivalent annual annuity for the net present value of an investment project.

Related Terms:

Accidental Death Benefit (ADB)

Coverage against accidental death usually payable in addition to base amount of coverage.

Accumulated Benefit Obligation (ABO)

An approximate measure of the liability of a plan in the event of a
termination at the date the calculation is performed. Related: projected benefit obligation.

Annual fund operating expenses

For investment companies, the management fee and "other expenses,"
including the expenses for maintaining shareholder records, providing shareholders with financial statements,
and providing custodial and accounting services. For 12b-1 funds, selling and marketing costs are included.

Annual percentage rate (APR)

The periodic rate times the number of periods in a year. For example, a 5%
quarterly return has an APR of 20%.

annual percentage rate (APR)

Interest rate that is annualized using simple interest.

Annual percentage yield (APY)

The effective, or true, annual rate of return. The APY is the rate actually
earned or paid in one year, taking into account the affect of compounding. The APY is calculated by taking
one plus the periodic rate and raising it to the number of periods in a year. For example, a 1% per month rate
has an APY of 12.68% (1.01^12).

Annual Premium

Yearly amount payable by a client for a policy or component.

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Annual report

Yearly record of a publicly held company's financial condition. It includes a description of the
firm's operations, its balance sheet and income statement. SEC rules require that it be distributed to all
shareholders. A more detailed version is called a 10-K.

Annual Report

The report required by the Stock Exchange for all listed companies, containing the company’s financial statements.

Annual report

A report issued to a company’s shareholders, creditors, and regulatory
organizations at the end of its fiscal year. It typically contains at least an income
statement, balance sheet, statement of cash flows, and accompanying footnotes. It
may also contain management comments, an audit report, and other supporting
schedules that may be required by regulatory organizations.

annual return

The 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 gain

If stock X appreciates 1.5% in one month, the annualized gain for that sock over a twelve
month period is 12*1.5% = 18%. Compounded over the twelve month period, the gain is (1.015)^12 = 19.6%.

Annualized holding period return

The annual rate of return that when compounded t times, would have
given the same t-period holding return as actually occurred from period 1 to period t.

Automatic Benefits Payment

Automatic payment of moneys derived from a benefit.


An instruction that pays a cash amount upon the occurrence of a specific event.

Benefit Ratio Method

The proportion of unemployment benefits paid to a company’s
former employees during the measurement period, divided by the total
payroll during the period. This calculation is used by states to determine the unemployment
contribution rate to charge employers.

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Benefit Value

The amount of cash payable on a benefit.

Benefit Wage Ratio Method

The proportion of total taxable wages for laid off
employees during the measurement period divided by the total payroll during
the period. This calculation is used by states to determine the unemployment
contribution rate to charge employers.

benefits-provided ranking

a listing of service departments in an order that begins with the one providing the most service
to all other corporate areas; the ranking ends with the
service department providing service primarily to revenueproducing

Bond-equivalent basis

The method used for computing the bond-equivalent yield.

Bond equivalent yield

Bond yield calculated on an annual percentage rate method. Differs from annual
effective yield.

Bond-equivalent yield

The annualized yield to maturity computed by doubling the semiannual yield.

Bond Equivalent Yield

Bond yield calculated on an annual percentage rate method

cafeteria plan a “menu” of fringe benefit options that include

cash or nontaxable benefits


The balance in a company’s checking account(s) plus short-term or temporary investments (sometimes called “marketable securities”), which are highly liquid.

Cash and equivalents

The value of assets that can be converted into cash immediately, as reported by a
company. Usually includes bank accounts and marketable securities, such as government bonds and Banker's
Acceptances. Cash equivalents on balance sheets include securities (e.g., notes) that mature within 90 days.

Cash equivalent

A short-term security that is sufficiently liquid that it may be considered the financial
equivalent of cash.

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Cash-equivalent items

Temporary investments of currently excess cash in short-term, high-quality
investment media such as treasury bills and Banker's Acceptances.

Cash Equivalents

Highly liquid, fixed-income investments with original maturities of three months or less.

Cash Equivalents

Instruments or investments of such high liquidity and safety that they are virtually equal to cash.

Certainty equivalent

An amount that would be accepted in lieu of a chance at a possible higher, but
uncertain, amount.

Common stock equivalent

A convertible security that is traded like an equity issue because the optioned
common stock is trading high.

Corporate taxable equivalent

Rate of return required on a par bond to produce the same after-tax yield to
maturity that the premium or discount bond quoted would.

Cost-Benefit Analysis

The calculation and comparison of the costs and benefits of a policy or project.

cost-benefit analysis the analytical process of comparing the

relative costs and benefits that result from a specific course
of action (such as providing information or investing in a

Cost-benefit ratio

The net present value of an investment divided by the investment's initial cost. Also called
the profitability index.

Coupon equivalent yield

True interest cost expressed on the basis of a 365-day year.

Death Benefit

Amount paid on death of an insured.

Defined benefit plan

A pension plan in which the sponsor agrees to make specified dollar payments to
qualifying employees. The pension obligations are effectively the debt obligation of the plan sponsor.
Related: defined contribution plan

Defined Benefit Plan

A pension plan that pays out a predetermined dollar
amount to participants, based on a set of rules that typically combine the number
of years of employment and wages paid over the time period when each
employee worked for the company.

Effective annual interest rate

An annual measure of the time value of money that fully reflects the effects of

effective annual interest rate

Interest rate that is annualized using compound interest.

Effective annual yield

annualized interest rate on a security computed using compound interest techniques.

Effective Annual Yield

annualized rate of return on a security computed using compound
interest techniques

Equivalent annual annuity

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

Equivalent annual cash flow

Annuity with the same net present value as the company's proposed investment.

Equivalent annual cost

The equivalent cost per year of owning an asset over its entire life.

equivalent annual cost

The cost per period with the same present value as the cost of buying and operating a machine.

Equivalent bond yield

annual yield on a short-term, non-interest bearing security calculated so as to be
comparable to yields quoted on coupon securities.

Equivalent loan

Given the after-tax stream associated with a lease, the maximum amount of conventional
debt that the same period-by-period after-tax debt service stream is capable of supporting.

Equivalent taxable yield

The yield that must be offered on a taxable bond issue to give the same after-tax
yield as a tax-exempt issue.

equivalent units of production (EUP)

an approximation of the number of whole units of output that could have been
produced during a period from the actual effort expended
during that period; used in process costing systems to assign
costs to production

Fixed-income equivalent

Also called a busted convertible, a convertible security that is trading like a straight
security because the optioned common stock is trading low.

Flat benefit formula

Method used to determine a participant's benefits in a defined benefit plan by
multiplying months of service by a flat monthly benefit.

Incremental costs and benefits

Costs and benefits that would occur if a particular course of action were
taken compared to those that would occur if that course of action were not taken.

Living Benefit

Some insurance companies include this benefit option at no cost to their policy holders. The insurer considers on a case to case basis, the need for insurance funds before death. If the insured can demonstrate a shortened life of less than two years and with some insurers one year, the insurer will consider releasing up to 50% or a maximum of $100,000 of the life insurance coverage held by the insured. Not all insurers offer this benefit for free. The need has resulted in specific stand alone living benefit/critical illness policies coming into existence. Look under "Different types of Life Insurance" for further information. You might have heard of "Viatical Settlements", the practice of seriously ill people selling the rights to their life insurance policies to third parties. This practice is common in the United States but has not caught on in Canada.

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.

Nominal annual rate

An effective rate per period multiplied by the number of periods in a year.

Pension Benefit Guaranty Corporation (PBGC)

A federal agency that insures the vested benefits of
pension plan participants (established in 1974 by the ERISA legislation).

Stated annual interest rate

The interest rate expressed as a per annum percentage, by which interest
payment is determined.

Target Benefit Plan

A defined benefit plan under which the employer makes
annual contributions into the plan based on the actuarial assumption at that time
regarding the amount of funding needed to achieve a targeted benefit level.

tax benefit (of depreciation)

the amount of depreciation deductible for tax purposes multiplied by the tax rate;
the reduction in taxes caused by the deductibility of depreciation

Unit benefit formula

Method used to determine a participant's benefits in a defined benefit plan by
multiplying years of service by the percentage of salary.

Workers' Compensation Benefits

Employer-paid insurance that provides their employees with wage compensation if they are injured on the job.







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