Financial Terms
Normal annuity form

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Definition of Normal annuity form

Normal Annuity Form Image 1

Normal annuity form

The manner in which retirement benefits are paid out.

Related Terms:

Abnormal returns

Part of the return that is not due to systematic influences (market wide influences). In
other words, abnormal returns are above those predicted by the market movement alone. Related: excess

ADF (annuity discount factor)

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


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.


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.

Normal Annuity Form Image 2


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 factor

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

annuity factor

Present value of an annuity of $1 per period.

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.

Asymmetric information

Information that is known to some people but not to other people.

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.

BARRA's performance analysis (PERFAN)

A method developed by BARRA, a consulting firm in
Berkeley, Calif. It is commonly used by institutional investors applying performance attribution analysis to
evaluate their money managers' performances.

CARs (cumulative abnormal returns)

a measure used in academic finance articles to measure the excess returns an investor would have received over a particular time period if he or she were invested in a particular stock.
This is typically used in control and takeover studies, where stockholders are paid a premium for being taken over. Starting some time period before the takeover (often five days before the first announced bid, but sometimes a longer period), the researchers calculate the actual daily stock returns for the target firm and subtract out the expected market returns (usually calculated using the firm’s beta and applying it to overall market movements during the time period under observation).
The excess actual return over the capital asset pricing model-determined expected return market is called an ‘‘abnormal return.’’ The cumulation of the daily abnormal returns over the time period under observation is the CAR. The term CAR(-5, 0) means the CAR calculated from five days before the
announcement to the day of announcement. The CAR(-1, 0) is a control premium, although Mergerstat generally uses the stock price five days before announcement rather than one day before announcement as the denominator in its control premium calculation. However, the CAR for any period other than (-1, 0) is not mathematically equivalent to a control premium.

Committee, AIMR Performance Presentation Standards Implementation Committee

The Association for Investment Management and Research (AIMR)'s Performance Presentation Standards Implementation
Committee is charged with the responsibility to interpret, revise and update the AIMR Performance
Presentation Standards (AIMR-PPS(TM)) for portfolio performance presentations.

Cumulative abnormal return (CAR)

Sum of the differences between the expected return on a stock and the
actual return that comes from the release of news to the market.

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.

Direct-Method Format

A format for the operating section of the cash-flow statement that reports actual cash receipts and cash disbursements from operating activities.

Equivalent annual annuity

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

Expected value of perfect information

The expected value if the future uncertain outcomes could be known
minus the expected value with no additional information.

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.

Form 1099

A form used by businesses to report to the government payments
made to certain types of suppliers.

Form 4070

A form used by employees to report to an employer the amount of
their tip income.

Form 668-W

The standard form used for notifying a company to garnish an employee’s
wages for unpaid taxes.

Form 8027

The form used by employers to report tip income by their employees
to the government.

Form 940

A form used to report federal unemployment tax remittances and liabilities.

Form 940-EZ

A shortened version of the form 940.
form 941
A form used to identify to the government the amount of all quarterly
wages on which taxes were withheld, the amount of taxes withheld, and any adjustments
to withheld taxes from previous reporting periods.

Form I-9

The Employment Eligibility Verification form, which must be filled
out for all new employees to establish their identity and eligibility to work.

Formalized Line of Credit

A contractual commitment to make loans to a particular borrower up to a specified maximum during a specified period, usually one year.

Formula basis

A method of selling a new issue of common stock in which the SEC declares the registration
statement effective on the basis of a price formula rather than on a specific range.

Future-Oriented Financial Information

Information about prospective results of operations, financial position and/or changes in financial position, based on assumptions about future economic conditions and courses of action. Future-oriented financial information is presented as either a forecast or a projection.

Guaranteed Interest Annuity (GIA)

Interest bearing investment with fixed rate and term.

Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (IIRIRA)

A federal Act shielding employers from liability if they have made
a good-faith effort to verify a new employee’s identity and employment eligibility.

Immigration Reform and Control Act of 1986

A federal Act requiring all employers having at least four employees to verify the identity and employment
eligibility of all regular, temporary, casual, and student employees.

Indirect-Method Format

A format for the operating section of the cash-flow statement that
presents the derivation of cash flow provided by operating activities. The format starts with net
income and adjusts for all nonoperating items and all noncash expenses and changes in working capital accounts.

Individual Retirement Annuity

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


bits of knowledge or fact that have been carefully
chosen from a body of data and arranged in a meaningful way

Information asymmetry

A situation involving information that is known to some, but not all, participants.

Information Coefficient (IC)

The correlation between predicted and actual stock returns, sometimes used to
measure the value of a financial analyst. An IC of 1.0 indicates a perfect linear relationship between predicted
and actual returns, while an IC of 0.0 indicates no linear relationship.

Information-content effect

The rise in the stock price following the dividend signal.

information content of dividends

Dividend increases send good news about cash flow and earnings. Dividend cuts send bad news.

Information costs

Transaction costs that include the assessment of the investment merits of a financial asset.
Related: search costs.

Information-motivated trades

Trades in which an investor believes he or she possesses pertinent
information not currently reflected in the stock's price.

Information services

Organizations that furnish investment and other types of information, such as
information that helps a firm monitor its cash position.

Informational efficiency

The speed and accuracy with which prices reflect new information.

Informationless trades

Trades that are the result of either a reallocation of wealth or an implementation of an
investment strategy that only utilizes existing information.

Insider information

Relevant information about a company that has not yet been made public. It is illegal for
holders of this information to make trades based on it, however received.

Lognormal distribution

A distribution where the logarithm of the variable follows a normal distribution.
Lognormal distributions are used to describe returns calculated over periods of a year or more.

management information system (MIS)

a structure of interrelated elements that collects, organizes, and communicates
data to managers so they may plan, control, evaluate
performance, and make decisions; the emphasis of the
MIS is on internal demands for information rather than external
demands; some or all of the MIS may be computerized
for ease of access to information, reliability of input
and processing, and ability to simulate outcomes of
alternative situations

material requisition form

a source document that indicates
the types and quantities of material to be placed into production
or used in performing a service; it causes materials
and its cost to be released from the Raw Material Inventory
warehouse and sent to Work in Process Inventory

Medical Information Bureau

This organization was established in 1902. The Medical Information Bureau (M.I.B.) is a non-profit association of life insurance companies. Its purpose is to detect and deter fraud by providing warnings called, alerts, to member companies. For example, if an insurance applicant advised one insurance company of a heart attack and then applied to another insurance company omitting this history, codes, reported by the first insurance company, indicating a heart attack would alert the second insurance company to the undisclosed history. It is a rarity, however, that the alert is the only notice of a specific medical impairement as most applicants completely disclose their history.

net cost of normal spoilage

the cost of spoiled work less the estimated disposal value of that work

Nonconforming material

Any inventory item that does not match its original design
specifications within approved tolerance levels.

Normal backwardation theory

Holds that the futures price will be bid down to a level below the expected
spot price.

Normal (bell-shaped) distribution

In statistics, a theoretical frequency
distribution for a set of variable data, usually represented by a bell-shaped
curve symmetrical about the mean.

normal capacity

the long-run (5–10 years) average production
or service volume of a firm; it takes into consideration
cyclical and seasonal fluctuations

normal cost system

a valuation method that uses actual
costs of direct material and direct labor in conjunction with
a predetermined overhead rate or rates in determining the
cost of Work in Process Inventory

Normal deviate

Related: standardized value

normal loss

an expected decline in units during the production process

Normal portfolio

A customized benchmark that includes all the securities from which a manager normally
chooses, weighted as the manager would weight them in a portfolio.

Normal probability distribution

A probability distribution for a continuous random variable that is forms a
symmetrical bell-shaped curve around the mean.

Normal random variable

A random variable that has a normal probability distribution.

normal spoilage

spoilage that has been planned or foreseen; is a product cost

Normalizing method

The practice of making a charge in the income account equivalent to the tax savings
realized through the use of different depreciation methods for shareholder and income tax purposes, thus
washing out the benefits of the tax savings reported as final net income to shareholders.

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

organizational form

an entity’s legal nature (for example,
sole proprietorship, partnership, corporation)


When a security is expected to appreciate at a rate faster than the overall market.

Performance attribution analysis

The decomposition of a money manager's performance results to explain
the reasons why those results were achieved. This analysis seeks to answer the following questions: (1) What
were the major sources of added value? (2) Was short-term factor timing statistically significant? (3) Was
market timing statistically significant? And (4), Was security selection statistically significant?

Performance evaluation

The evaluation of a manager's performance which involves, first, determining
whether the money manager added value by outperforming the established benchmark (performance
measurement) and, second, determining how the money manager achieved the calculated return (performance
attribution analysis).

performance evaluation

the process of determining the degree
of success in accomplishing a task; it equates to both
effectiveness and efficiency

performance management system

a system reflecting the entire package of decisions regarding performance measurement and evaluation

Performance measurement

The calculation of the return realized by a money manager over some time interval.

Performance shares

Shares of stock given to managers on the basis of performance as measured by earnings
per share and similar criteria. A control device used by shareholders to tie management to the self-interest of

Pro forma capital structure analysis

A method of analyzing the impact of alternative capital structure
choices on a firm's credit statistics and reported financial results, especially to determine whether the firm will
be able to use projected tax shield benefits fully.

Pro-Forma Earnings

Reported net income with selected nonrecurring items of revenue or gain
and expense or loss deducted from or added back, respectively, to reported net income. Occasionally
selected nonoperating or noncash items are also treated as adjustment items.

Pro forma financial statements

Financial statements as adjusted to reflect a projected or planned transaction.

Pro forma (Proforma)

A set of financial statements that incorporates some assumptions, usually
regarding future events. For example, pro forma statements can be constructed that
extend a company’s financial statements through the end of its fiscal year, and
which contain assumptions regarding the final few months of the year, which have
not yet occurred.

Pro forma statement

A financial statement showing the forecast or projected operating results and balance
sheet, as in pro forma income statements, balance sheets, and statements of cash flows.

pro formas

Projected or forecasted financial statements.

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

Semi-strong form efficiency

A form of pricing efficiency where the price of the security fully reflects all
public information (including, but not limited to, historical price and trading patterns). Compare weak form
efficiency and strong form efficiency.

semi-strong-form efficiency

Market prices reflect all publicly available information.

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.

Spoilage, abnormal

Spoilage arising from the production process that exceeds the normal
or expected rate of spoilage. Since it is not a recurring or expected cost of ongoing
production, it is expensed to the current period.

Spoilage, normal

The amount of spoilage that naturally arises as part of a production
process, no matter how efficient that process may be.

Standardized normal distribution

A normal distribution with a mean of 0 and a standard deviation of 1.

Strong-form efficiency

Pricing efficiency, where the price of a, security reflects all information, whether or
not it is publicly available. Related: Weak form efficiency, semi strong form efficiency

strong-form efficiency

Market prices rapidly reflect all information that could in principle be used to determine true value.

Tax Reform Act of 1986

A 1986 law involving a major overhaul of the U.S. tax code.


When a security is expected to appreciate at a slower rate than the overall market.

Uniform Interstate Family Support Act

A federal Act specifying which jurisdiction
shall issue family support-related garnishment orders.







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