Definition of Real

Real

Measured in base year, or constant, dollars. Contrast with nominal.

After-tax real rate of return

Money after-tax rate of return minus the inflation rate.

approximated net realizable value at split-off allocation

a method of allocating joint cost to joint products using a
simulated net realizable value at the split-off point; approximated
value is computed as final sales price minus
incremental separate costs

Exchange Rate, Real

The nominal exchange rate corrected for price level differences.

Interest Rate, Real

Nominal interest rate less expected inflation.

Net Realizable Value

Selling price of an asset less expenses of bringing the asset into a saleable state and expenses of the sale.

net realizable value approach

a method of accounting for by-products or scrap that requires that the net realizable value of these products be treated as a reduction in the cost of the primary products; primary product cost may be reduced by decreasing either
(1) cost of goods sold when the joint products are sold or
(2) the joint process cost allocated to the joint products

net realizable value at split-off allocation

a method of allocating joint cost to joint products that uses, as the proration base, sales value at split-off minus all costs necessary
to prepare and dispose of the products; it requires
that all joint products be salable at the split-off point

Net realizeable value

The expected revenue to be gained from the sale of an item or
service, less the costs of the sale transaction.

Real Actions (Earnings) Management

Involves operational steps and not simply acceleration
or delay in the recognition of revenue or expenses. The delay or acceleration of shipment would
be an example.

Real assets

Identifiable assets, such as buildings, equipment, patents, and trademarks, as distinguished from a
financial obligation.

real assets

Assets used to produce goods and services.

Real Business Cycle Theory

Belief that business cycles arise from real shocks to the economy, such as technology advances and natural resource discoveries, and have little to do with monetary policy.

Real capital

Wealth that can be represented in financial terms, such as savings account balances, financial
securities, and real estate.

Real cash flow

A cash flow is expressed in real terms if the current, or date 0, purchasing power of the cash
flow is given.

Real Exchange Rate

Exchange rate adjusted for relative price levels.

Real exchange rates

Exchange rates that have been adjusted for the inflation differential between two countries.

Real GDP

GDP expressed in base-year dollars, calculated by dividing nominal GDP by a price index.

Real Income

Income expressed in base-year dollars, calculated by dividing nominal income by a price index.

Real interest rate

The rate of interest excluding the effect of inflation; that is, the rate that is earned in terms
of constant-purchasing-power dollars. Interest rate expressed in terms of real goods, i.e. nominal interest rate
adjusted for inflation.

Real Interest Rate

The rate of interest paid on an investment adjusted for inflation

real interest rate

Rate at which the purchasing power of an investment increases.

Real market

The bid and offer prices at which a dealer could do "size." Quotes in the brokers market may
reflect not the real market, but pictures painted by dealers playing trading games.

real microprofit center

a center whose output has a market value

Real Money Supply

Money supply expressed in base-year dollars, calculated by dividing the money supply by a price index.

real options

Options embedded in real assets.

Real Rate of Interest

See interest rate, real.

Real time

A real time stock or bond quote is one that states a security's most recent offer to sell or bid (buy).
A delayed quote shows the same bid and ask prices 15 minutes and sometimes 20 minutes after a trade takes place.

real value of $1

Purchasing power–adjusted value of a dollar.

Real Wage

Wage expressed in base-year dollars, calculated by dividing the money wage by a price index.

Realizable Revenue A revenue transaction where assets received in exchange for goods and

services are readily convertible into known amounts of cash or claims to cash.

Realized compound yield

Yield assuming that coupon payments are invested at the going market interest
rate at the time of their receipt and rolled over until the bond matures.

Realized Gains and Losses

Increases or decreases in the fair value of an asset or a liability that
are realized through sale or settlement.

Realized return

The return that is actually earned over a given time period.

Realized Revenue

A revenue transaction where goods and services are exchanged for cash or
claims to cash.

realized value approach

a method of accounting for byproducts or scrap that does not recognize any value for these products until they are sold; the value recognized
upon sale can be treated as other revenue or other income

REIT (real estate investment trust)

real estate investment trust, which is similar to a closed-end mutual
fund. REITs invest in real estate or loans secured by real estate and issue shares in such investments.

REMIC (real estate mortgage investment conduit)

A pass-through tax entity that can hold mortgages
secured by any type of real property and issue multiple classes of ownership interests to investors in the form
of pass-through certificates, bonds, or other legal forms. A financing vehicle created under the Tax Reform
Act of 1986.

accelerated depreciation

(1) The estimated useful life of the fixed asset being depreciated is
shorter than a realistic forecast of its probable actual service life;
(2) more of the total cost of the fixed asset is allocated to the first
half of its useful life than to the second half (i.e., there is a
front-end loading of depreciation expense).

Accomodating Policy

A monetary policy of matching wage and price increases with money supply increases so that the real money supply does not fall and push the economy into recession.

ACID-TEST RATIO

A ratio that shows how well a company could pay its current debts using only its most liquid or “quick” assets. It’s a more pessimistic—but also realistic—measure of safety than the current ratio, because it ignores sluggish, hard-toliquidate current assets like inventory and notes receivable. Here’s the formula:
(Cash + Accounts receivable + Marketable securities) / (Current liabilities)

ad hoc discount

a price concession made under competitive pressure (real or imagined) that does not relate to quantity purchased

Aggressive Capitalization Policies

Capitalizing and reporting as assets significant portions of
expenditures, the realization of which require unduly optimistic assumptions.

Asset-backed security

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

Asset classes

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

Bane

In the words of Warren Buffet, Bill Bane Sr., is, "a great American and one of the last real traders
around. I like to call him 'Salvo.'" His wife, Carol, is a huge NASCAR fan, and in her own words "delights in
pulling the legs off central bankers." Cooper Bane, son number two, is a thriving artiste who specializes in
making art that is much better than the stuff most folks are doing. Jackson, son number three, is a world
renowned master chef and plans on opening a restaurant. Bill Bane Jr., son number one, plans on giving Mr.
Monroe Trout a run for his money. [Bill Bane, Jr. helped Professor Harvey put the hypertextual glossary
together while an MBA student at Duke University.]

Capital

a) Physical capital: buildings, equipment, and any materials used to produce other goods and services in the future rather than being consumed today.
b) Financial capital: funds available for acquiring real capital.
c) Human capital: the value of the education and experience that make people more productive.

capital budgeting decision

Decision as to which real assets the firm should acquire.

capital gain

The positive difference between the adjusted cost base of an investment held as a capital property and the proceeds of disposition you receive when you sell it. When you sell such an investment for more than you paid, you realize a capital gain.

Cash flow

In investments, it represents earnings before depreciation , amortization and non-cash charges.
Sometimes called cash earnings. Cash flow from operations (called funds from operations ) by real estate and
other investment trusts is important because it indicates the ability to pay dividends.

Commercial Mortgage

A loan made on real estate collateral, other than a residential property, in which a mortgage is given to secure payment of principal and interest.

Constant dollars

See real dollars.

Current Dollars

A variable like GDP is measured in current dollars if each year's value is measured in prices prevailing during that year. In contrast, when measured in real or constant dollars, each year's value is measured in a base year's prices.

Deferred Tax Asset

Future tax benefit that results from (1) the origination of a temporary difference
that causes pretax book income to be less than taxable income or (2) a loss, credit, or other
carryforward. Future tax benefits are realized on the reversal of deductible temporary differences
or the offsetting of a loss carryforward against taxable income or a tax-credit carryforward against
the current tax provision.

Deflator

A price index used to deflate a nominal value to a real value by dividing the nominal value by the price deflator.

Dollar return

The return realized on a portfolio for any evaluation period, including (1) the change in market
value of the portfolio and (2) any distributions made from the portfolio during that period.

EBDDT - Earnings before depreciation and deferred taxes

This measure is used principally by
firms in the real estate industry, with the exception of real estate investment trusts, which typically
do not pay taxes.

Economic earnings

The real flow of cash that a firm could pay out forever in the absence of any change in
the firm's productive capacity.

electronic data interchange (EDI)

the computer-to-computer transfer of information in virtual real time using standardized formats developed by the American National Standards Institute

enterprise resource planning (ERP) system

a packaged software program that allows a company to
(1) automate and integrate the majority of its business processes,
(2) share common data and practices across the entire enterprise, and
(3) produce and access information in a realtime environment

Financial assets

Claims on real assets.

financial assets

Claims to the income generated by real assets. Also called securities.

financing decision

Decision as to how to raise the money to pay for investments in real assets.

Fisher effect

A theory that nominal interest rates in two or more countries should be equal to the required real
rate of return to investors plus compensation for the expected amount of inflation in each country.

Fixed asset

Long-lived property owned by a firm that is used by a firm in the production of its income.
Tangible fixed assets include real estate, plant, and equipment. Intangible fixed assets include patents,
trademarks, and customer recognition.

fixed assets

An informal term that refers to the variety of long-term operating
resources used by a business in its operations—including real
estate, machinery, equipment, tools, vehicles, office furniture, computers,
and so on. In balance sheets, these assets are typically labeled property,
plant, and equipment. The term fixed assets captures the idea that the
assets are relatively fixed in place and are not held for sale in the normal
course of business. The cost of fixed assets, except land, is depreciated,
which means the cost is allocated over the estimated useful lives of the
assets.

Funds From Operations (FFO)

Used by real estate and other investment trusts to define the cash flow from
trust operations. It is earnings with depreciation and amortization added back. A similar term increasingly
used is Funds Available for Distribution (FAD), which is FFO less capital investments in trust property and
the amortization of mortgages.

GDP Deflator

Price index used to deflate nominal GDP to real GDP by dividing nominal GDP by the GDP deflator.

Index

A series of numbers measuring percentage changes over time from a base period. The index number for the base period is by convention set equal to 100.
Indexing
Linking money payments to a price index to hold the real value of those money payments constant.

Inflation risk

Also called purchasing-power risk, the risk that changes in the real return the investor will
realize after adjusting for inflation will be negative.

Inflation Tax

The loss in purchasing power due to inflation eroding the real value of financial assets such as cash.

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.

Interest Rate Parity

Theory that real interest rates are approximately the same across countries except for a risk premium.

Intermarket spread swaps

An exchange of one bond for another based on the manager's projection of a
realignment of spreads between sectors of the bond market.

international Fisher effect

Theory that real interest rates in all countries should be equal, with differences in nominal rates reflecting differences in expected inflation.

Lease (Credit Insurance)

Contract granting use of real estate, equipment or other fixed assets for a specified period of time in exchange for payment. The owner or a leased property is the lessor and the user the lessee.

Leasing

Contract granting use of real estate, equipment, or other fixed assets for a specified time in exchange for payment, usually in the form of rent. The owner of the leased property is called the lessor, the user the lessee.
See Also:
* Capital Lease
* Operating Lease
* Sale and Leaseback

Liquidation value

Net amount that could be realized by selling the assets of a firm after paying the debt.

liquidation value

Net proceeds that would be realized by selling the firm’s assets and paying off its creditors.

Modeling

The process of creating a depiction of reality, such as a graph, picture, or mathematical
representation.

Monetarist Rule

Proposal that the money supply be increased at a steady rate equal approximately to the real rate of growth of the economy. Contrast with discretionary policy.

Mortgage

A loan secured by the collateral of some specified real estate property which obliges the borrower
to make a predetermined series of payments.

Mortgage Insurance

Commonly sold in the form of reducing term life insurance by lending institutions, this is life insurance with a death benefit reducing to zero over a specific period of time, usually 20 to 25 years. In most instances, the cost of coverage remains level, while the death benefit continues to decline. Re-stated, the cost of this kind of insurance is actually increasing since less death benefit is paid as the outstanding mortgage balance decreases while the cost remains the same. Lending institutions are the most popular sources for this kind of coverage because it is usually sold during the purchase of a new mortgage. The untrained institution mortgage sales person often gives the impression that this is the only place mortgage insurance can be purchased but it is more efficiently purchased at a lower cost and with more flexibility, directly from traditional life insurance companies. No matter where it is purchased, the reducing term insurance death benefit reduces over a set period of years. Most consumers are up-sizing their residences, not down-sizing, so it is likely that more coverage is required as years pass, rather than less coverage.
The cost of mortgage lender's insurance group coverage is based on a blended non-smoker/smoker rate, not having any advantage to either male or female. Mortgage lender's group insurance certificate specifies that it [the lender] is the sole beneficiary entitled to receive the death benefit. Mortgage lender's group insurance is not portable and is not guaranteed. Generally speaking, your coverage is void if you do not occupy the house for a period of time, rent the home, fall into arrears on the mortgage, and there are a few others which vary by institution. If, for example, you sell your home and buy another, your current mortgage insurance coverage ends and you will have to qualify for new coverage when you purchase your next home. Maybe you won't be able to qualify. Not being guaranteed means that it is possible for the lending institution's group insurance carrier to cancel all policy holder's coverages if they are experiencing too many death benefit claims.
Mortgage insurance purchased from a life insurance company, is priced, based on gender, smoking status, health and lifestyle of the purchaser. Once obtained, it is a unilateral contract in your favour, which cannot be cancelled by the insurance company unless you say so or unless you stop paying for it. It pays upon the death of the life insured to any "named beneficiary" you choose, tax free. If, instead of reducing term life insurance, you have purchased enough level or increasing life insurance coverage based on your projection of future need, you can buy as many new homes in the future as you want and you won't have to worry about coverage you might loose by renewing or increasing your mortgage.
It is worth mentioning mortgage creditor protection insurance since it is many times mistakenly referred to simply as mortgage insurance. If a home buyer has a limited amount of down payment towards a substantial home purchase price, he/she may qualify for a high ratio mortgage on a home purchase if a lump sum fee is paid for mortgage creditor protection insurance. The only Canadian mortgage lenders currently known to offer this option through the distribution system of banks and trust companies, are General Electric Capital [GE Capital] and Central Mortgage and Housing Corporation [CMHC]. The lump sum fee is mandatory when the mortgage is more than 75% of the value of the property being purchased. The lump sum fee is usually added onto the mortgage. It's important to realize that the only beneficiary of this type of coverage is the morgage lender, which is the bank or trust company through which the buyer arranged their mortgage. If the buyer for some reason defaults on this kind of high ratio mortgage and the value of the property has dropped since being purchased, the mortgage creditor protection insurance makes certain that the bank or trust company gets paid. However, this is not the end of the story, because whatever the difference is, between the disposition value of the property and whatever sum of unpaid mortgage money is outstanding to either GE Capital or CMHC will be the subject of collection procedures against the defaulting home buyer. Therefore, one should conclude that this kind of insurance offers protection only to the bank or trust company and absolutely no protection to the home buyer.

negative cash flow

The cash flow from the operating activities of a business
can be negative, which means that its cash balance decreased from
its sales and expense activities during the period. When a business is
operating at a loss instead of making a profit, its cash outflows for
expenses very likely may be more than its cash inflow from sales. Even
when a business makes a profit for the period, its cash inflow from sales
could be considerably less than the sales revenue recorded for the
period, thus causing a negative cash flow for the period. Caution: This
term also is used for certain types of investments in which the net cash
flow from all sources and uses is negative. For example, investors in
rental real estate properties often use the term to mean that the cash
inflow from rental income is less than all cash outflows during the
period, including payments on the mortgage loan on the property.

Neutrality of Money

The doctrine that the money supply affects only the price level, with no long-run impact on real variables.

Nominal

Measured in money terms, in current rather than real dollars. Contrast with real.

Nominal exchange rate

The actual foreign exchange quotation in contrast to the real exchange rate that has
been adjusted for changes in purchasing power.

Non-Smoker Discount

In October 1996 it was announced in the international news that scientists had finally located the link between cigarette smoking and lung cancer. In the early 1980's, some Canadian Life Insurance Companies had already started recognizing that non-smokers had a better life expectancy than smokers so commenced offering premium discounts for life insurance to new applicants who have been non-smokers for at least 12 months before applying for coverage. Today, most life insurance companies offer these discounts.
Savings to non-smokers can be up to 50% of regular premium depending on age and insurance company. Most life insurance companies offering non-smoker rates insist that the person applying for coverage have abstained from any form of tobacco or marijuana for at least twelve months, some companies insist on longer periods, up to 15 years.
Tobacco use is generally considered to be cigarettes, cigarillos, cigars, pipes, chewing tobacco, nicorette gum, snuff, marijuana and nicotine patches. In addition to these, if anyone tests positive to cotinine, a by-product of nicotine, they are also considered a smoker. There are some insurance companies which allow moderate or occasional use of cigars, cigarillos or pipes as acceptable for non-smoker status. Experienced brokers are aware of how to locate these insurance companies and save you money.
Special care should be taken by applicants for coverage who qualify for non-smoker rates by virtue of having ceased a smoking habit for the required period before application, but for some reason, fall back into the smoking habit some time after obtaining coverage. While contractually, the insurance company is still bound to a non-smoking rate, the facts of the applicant's smoking hiatus may become vague over the subsequent years of the resumed habit and at time of death claim, the insurance company may decide to contest the original non-smoking declaration. The consequence is not simply a need to back pay the difference between non-smoker and smoker rates but in reality the possibility of denial of death claim. It is therefore, important to advise the servicing broker as well as the insurance company of the change in smoking habits to make certain that sufficient evidence is documented to track the non-smoking period.

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.

Operating cycle

The average time intervening between the acquisition of materials or services and the final
cash realization from those acquisitions.

Opportunity cost

Lost revenue that would otherwise have been realized if a different
decision point had been selected.

Paper gain (loss)

Unrealized capital gain (loss) on securities held in portfolio, based on a comparison of
current market price to original cost.

Performance measurement

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

Portfolio

A collection of investments, real and/or financial.

Production payment financing

A method of nonrecourse asset-based financing in which a specified
percentage of revenue realized from the sale of the project's output is used to pay debt service.

Purchasing Power Parity

Theory that says that over the long run exchange rate changes offset any difference between foreign and domestic inflation. This result assumes that the real exchange rate remains constant, something that is not true even in the long run.

Random variable

A function that assigns a real number to each and every possible outcome of a random experiment.

Rebalancing

realigning the proportions of assets in a portfolio as needed.

Recession

Loosely speaking, a period of less-than-normal economic growth. Technically, a downturn in economic activity in which real GDP falls in two consecutive quarters.

Registered Retirement Savings Plan (Canada)

Commonly referred to as an RRSP, this is a tax sheltered and tax deferred savings plan recognized by the Federal and Provincial tax authorities, whereby deposits are fully tax deductable in the year of deposit and fully taxable in the year of receipt. The ability to defer taxes on RRSP earnings allows one to save much faster than is ordinarily possible. The new rules which apply to RRSP's are that the holder of such a plan must convert it into income by the end of the year in which the holder turns age 69. The choices for conversion are to simply cash it in an pay full tax in the year of receipt, convert it to a RRIF and take a varying stream of income, paying tax on the amount received annually until the income is exhausted, or converting it into an annuity with guaranteed payments for a chosen number of years, again paying tax each year on moneys received.
If you are currently 69 years of age, you may still contribute to your own RRSP until December 31st of this year and realize a tax deduction on this year's income. You must also, however, make provisions before December 31st of the year for converting your RRSP into either a RRIF or an annuity, otherwise, the full balance of your RRSP becomes taxable on January 1 of the following year. If you are older than age 69, still have earned income, and have a younger spouse, you may continue to contribute to a spousal RRSP until that spouse reaches 69 years of age. Contributions would be based on your own contribution level and are deducted from your taxable income.

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