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Perpetuity

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Definition of Perpetuity

Perpetuity Image 1

Perpetuity

A constant stream of identical cash flows without end, such as a British consol.


Perpetuity

A special case of an annuity with no set maturity. Payments are
made forever.


perpetuity

Stream of level cash payments that never ends.



Related Terms:

Growing perpetuity

A constant stream of cash flows without end that is expected to rise indefinitely.


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.


Dividend growth model

A model wherein dividends are assumed to be at a constant rate in perpetuity.



Gordon model

present value of a perpetuity with growth.
The end-ofyear Gordon model formula is: 1/(r - g)
and the midyear formula is: SQRT(1 + r)/(r - g).


accepted quality level (AQL)

the maximum limit for the number of defects or errors in a process


Perpetuity Image 1

Acquisition of assets

A merger or consolidation in which an acquirer purchases the selling firm's assets.


ADF (annuity discount factor)

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


Adjusted Cash Flow Provided by Continuing Operations

cash flow provided by operating
activities adjusted to provide a more recurring, sustainable measure. Adjustments to reported cash
provided by operating activities are made to remove such nonrecurring cash items as: the operating
component of discontinued operations, income taxes on items classified as investing or financing activities, income tax benefits from nonqualified employee stock options, the cash effects of purchases and sales of trading securities for nonfinancial firms, capitalized expenditures, and other nonrecurring cash inflows and outflows.


Aggregate Expenditure Curve

Aggregate demand for goods and services drawn as a function of the level of national income.


Allocation base A measure of activity or volume such as labour

hours, machine hours or volume of production
used to apportion overheads to products and
services.


Annuity

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


Annuity

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


Annuity

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.


annuity

Equally spaced level Stream of cash flows.


Perpetuity Image 2

Annuity

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.


Annuity

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.


Asset

Any possession that has value in an exchange.


Asset

A resource, recorded through a transaction, that is expected to yield a benefit to a
company.



Asset

Something that is owned; a financial claim or a piece of property that is a store of value.


Asset

Probable future economic benefit that is obtained or controlled by an entity as a result of
a past transaction or event.


asset

Anything owned by, or owed to, an individual or business which has commercial or exchange value (e.g., cash, property, etc.).


Asset

All things of value owned by an individual or organization.


Asset activity ratios

Ratios that measure how effectively the firm is managing its assets.


Asset allocation decision

The decision regarding how an institution's funds should be distributed among the
major classes of assets in which it may invest.


Asset-Backed Securities

Bond or note secured by assets of company.


Asset-backed security

A security that is collateralized by loans, leases, receivables, or installment contracts
on personal property, not real estate.


Asset-based financing

Methods of financing in which lenders and equity investors look principally to the
cash flow from a particular asset or set of assets for a return on, and the return of, their financing.


Asset-Based Financing

Loans granted usually by a financial institution where the asset being financed constitutes the sole security given to the lender.


Asset classes

Categories of assets, such as stocks, bonds, real estate and foreign securities.


Asset Coverage

Extent to which a company's net assets cover a particular debt obligation, class of preferred stock, or equity position.


Asset-coverage test

A bond indenture restriction that permits additional borrowing on if the ratio of assets to
debt does not fall below a specified minimum.


Asset/equity ratio

The ratio of total assets to stockholder equity.


Asset for asset swap

Creditors exchange the debt of one defaulting borrower for the debt of another
defaulting borrower.


Asset/liability management

Also called surplus management, the task of managing funds of a financial
institution to accomplish the two goals of a financial institution:
1) to earn an adequate return on funds invested, and
2) to maintain a comfortable surplus of assets beyond liabilities.


asset mix

The weighting of assets in an investment portfolio among different asset classes (e.g. shares, bonds, property, cash, overseas investments.


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.


Asset-specific Risk

The amount of total risk that can be eliminated by diversification by
creating a portfolio. Also known as company-specific risk or
unsystematic risk.


Asset substitution

A firm's investing in assets that are riskier than those that the debtholders expected.


Asset substitution problem

Arises when the stockholders substitute riskier assets for the firm's existing
assets and expropriate value from the debtholders.


Asset swap

An interest rate swap used to alter the cash flow characteristics of an institution's assets so as to
provide a better match with its iabilities.


Asset turnover

The ratio of net sales to total assets.


asset turnover

a ratio measuring asset productivity and showing the number of sales dollars generated by each dollar of assets


asset turnover ratio

A broad-gauge ratio computed by dividing annual
sales revenue by total assets. It is a rough measure of the sales-generating
power of assets. The idea is that assets are used to make sales, and the
sales should lead to profit. The ultimate test is not sales revenue on
assets, but the profit earned on assets as measured by the return on
assets (ROA) ratio.


Assets

A firm's productive resources.


ASSETS

Anything of value that a company owns.


Assets

Things that the business owns.


Assets

Items owned by the company or expenses that have been paid for but have not been used up.


Assets requirements

A common element of a financial plan that describes projected capital spending and the
proposed uses of net working capital.


Autonomous Expenditure

Elements of spending that do not vary systematically with variables such as GDP that are explained by the theory. See also exogenous expenditure.


Average maturity

The average time to maturity of securities held by a mutual fund. Changes in interest rates
have greater impact on funds with longer average life.


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.


Balance of payments

A statistical compilation formulated by a sovereign nation of all economic transactions
between residents of that nation and residents of all other nations during a stipulated period of time, usually a
calendar year.


Balance of Payments

The difference between the demand for and supply of a country's currency on the foreign exchange market.


Balance of Payments Accounts

A statement of a country's transactions with other countries.


Balloon maturity

Any large principal payment due at maturity for a bond or loan with or without a a sinking
fund requirement.


Bank for International Settlements (BIS)

An international bank headquartered in Basel, Switzerland, which
serves as a forum for monetary cooperation among several European central banks, the Bank of Japan, and the
U.S. Federal Reserve System. Founded in 1930 to handle the German payment of World War I reparations, it
now monitors and collects data on international banking activity and promulgates rules concerning
international bank regulation.


batch-level cost

a cost that is caused by a group of things
being made, handled, or processed at a single time


Blend off

The reintroduction of a faulty product into a process production flow by
adding it back in small increments.
1Copied with permission from Appendix B of Bragg, Inventory Best Practices, John Wiley
& Sons, 2004.


British clearers

The large clearing banks that dominate deposit taking and short-term lending in the domestic
sterling market.


Calendar

List of new issues scheduled to come to market shortly.


Calendar effect

The tendency of stocks to perform differently at different times, including such anomalies as
the January effect, month-of-the-year effect, day-of-the-week effect, and holiday effect.


capital asset

an asset used to generate revenues or cost savings
by providing production, distribution, or service capabilities
for more than one year


Capital asset

A fixed asset, something that is expected to have long-term usage within
a company, and which exceeds a minimum dollar amount (known as the capitalization
limit, or cap limit).


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.


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


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.


Capital expenditures

Amount used during a particular period to acquire or improve long-term assets such as
property, plant or equipment.


capital expenditures

Refers to investments by a business in long-term
operating assets, including land and buildings, heavy machinery and
equipment, vehicles, tools, and other economic resources used in the
operations of a business. The term capital is used to emphasize that
these are relatively large amounts and that a business has to raise capital
for these expenditures from debt and equity sources.


Capital Flows

Purchase by foreigners of our assets (capital inflows) or our purchase of foreign assets (capital outflows).


Capitalized Cost An expenditure or accrual that is reported as an asset to be amortized against

future-period revenue.


Capitalized Expenditures

Expenditures that are accounted for as assets to be amortized
against income in future periods as opposed to current-period expenses.


Cash

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

Amounts held in currency and coin (commonly referred to as petty cash) and amounts on deposit in financial institutions.
cash disbursement journal
A journal used to record the transactions that result in a credit to cash.


Cash

Currency, coin, and funds on deposit that are available for immediate withdrawal without
restriction. Money orders, certified checks, cashier's checks, personal checks, and bank drafts
are also considered cash.


Cash accounting

A method of accounting in which profit is calculated as the difference between income
when it is received and expenses when they are paid.


Cash and carry

Purchase of a security and simultaneous sale of a future, with the balance being financed
with a loan or repo.


CASH AND CASH EQUIVALENTS

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 budget

A forecasted summary of a firm's expected cash inflows and cash outflows as well as its
expected cash and loan balances.


cash burn rate

A relatively recent term that refers to how fast a business
is using up its available cash, especially when its cash flow from operating
activities is negative instead of positive. This term most often refers
to a business struggling through its start-up or early phases that has not
yet generated enough cash inflow from sales to cover its cash outflow for
expenses (and perhaps never will).


Cash commodity

The actual physical commodity, as distinguished from a futures contract.


Cash conversion cycle

The length of time between a firm's purchase of inventory and the receipt of cash
from accounts receivable.


cash conversion cycle

Period between firm’s payment for materials
and collection on its sales.


Cash cost

The amount of cash expended.


Cash cow

A company that pays out all earnings per share to stockholders as dividends. Or, a company or
division of a company that generates a steady and significant amount of free cash flow.


cash cow

Business that produces a lot of cash but few growth prospects.


Cash cycle

In general, the time between cash disbursement and cash collection. In net working capital
management, it can be thought of as the operating cycle less the accounts payable payment period.


Cash Cycle

The length of time between a purchase of materials and collection of accounts receivable generated by the sale of the products made from the materials.


Cash deficiency agreement

An agreement to invest cash in a project to the extent required to cover any cash
deficiency the project may experience.


Cash delivery

The provision of some futures contracts that requires not delivery of underlying assets but
settlement according to the cash value of the asset.


Cash discount

An incentive offered to purchasers of a firm's product for payment within a specified time
period, such as ten days.


Cash dividend

A dividend paid in cash to a company's shareholders. The amount is normally based on
profitability and is taxable as income. A cash distribution may include capital gains and return of capital in
addition to the dividend.


cash dividend

Payment of cash by the firm to its shareholders.


Cash equivalent

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


Cash-equivalent items

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



 

 

 

 

 

 

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