|Residual income (RI)
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Definition of Residual income (RI)
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.
a generalization formula invented by Abrams that is the present value of regular but noncontiguous cash flows that have constant growth to perpetuity.
Rule in bankruptcy proceedings whereby senior creditors are required to be paid in full
This doctrine says that a nation is sovereign within its own borders and its domestic
IRS rules used to allocate income on export sales to a foreign sales corporation.
An arrangement whereby a security issue is canceled if the underwriter is unable
Certificates issued by a U.S. depositary bank, representing foreign
An option that may be exercised at any time up to and including the expiration date.
Securities certificates issued in the U.S. by a transfer agent acting on behalf of the foreign
The second-largest stock exchange in the United States. It trades
An option contract that can be exercised at any time between the date of purchase and
The annual rate of return that when compounded t times, would have
A right of shareholders in a merger to demand the payment of a fair price for their shares, as
Formal request for funds for capital investment project.
An alternative model to the capital asset pricing model developed by
Yield curve option-pricing models.
Arithmetic average (mean) rate of return
Arithmetic mean return.
Arithmetic mean return
An average of the subperiod returns, calculated by summing the subperiod returns
Arm's length price
The price at which a willing buyer and a willing unrelated seller would freely agree to
A dealer's price to sell a security; also called the offer price.
A security that is collateralized by loans, leases, receivables, or installment contracts
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
Information that is known to some people but not to other people.
A situation wherein participants in a transaction have different net tax rates.
The tendency of stocks preferred by the dividend discount model to share certain equity
Number of shares authorized for issuance by a firm's corporate charter.
Automated Clearing House (ACH)
A collection of 32 regional electronic interbank networks used to
Average collection period, or days' receivables
The ratio of accounts receivables to sales, or the total
The average time to maturity of securities held by a mutual fund. Changes in interest rates
Any large principal payment due at maturity for a bond or loan with or without a a sinking
The risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk.
Gives the lessee the option to purchase the asset at a price below fair market
Contracts with trigger points that, when crossed, automatically generate buying or selling of
Price expressed in terms of yield to maturity or annual rate of return.
The uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for
Biased expectations theories
Related: pure expectations theory.
This is the quoted bid, or the highest price an investor is willing to pay to buy a security. Practically
Binomial option pricing model
An option pricing model in which the underlying asset can take on only two
Black-Scholes option-pricing model
A model for pricing call options based on arbitrage arguments that uses
The Treasury and federal agencies are moving to a book-entry system in which securities are not represented by engraved pieces of paper but are maintained in computerized records at the
Interim financing of one sort or another used to solidify a position until more permanent
The large clearing banks that dominate deposit taking and short-term lending in the domestic
Words used to describe investor attitudes. Bullish refers to an optimistic outlook while
The risk that the cash flow of an issuer will be impaired because of adverse economic
The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a
The price for which a bond can be repaid before maturity under a call provision.
The combination of cash flow uncertainty and reinvestment risk introduced by a call provision.
Capital asset pricing model (CAPM)
An economic theory that describes the relationship between risk and
Costs that increase with increases in the level of investment in current assets.
The market model applied to a single security. The slope of the line is a security's beta.
Bond price excluding accrued interest.
Clearing House Automated Payments System (CHAPS)
A computerized clearing system for sterling funds
Clearing House Interbank Payments System (CHIPS)
An international wire transfer system for high-value
A member firm of a clearing house. Each clearing member must also be a member of the
Clearing house / Clearinghouse
An adjunct to a futures exchange through which transactions executed its floor are settled by a
The risk that a foreign debtor will be unable to pay its debts because of business events,
Related: Unsystematic risk
The collection of money managers of similar investment style used for assessing
An offering of securities through competitive bidding.
The risk that a project will not be brought into operation successfully.
The length of the time period (for example, a quarter in the case of quarterly
Consumer Price Index (CPI)
The CPI, as it is called, measures the prices of consumer goods and services and is a
Continuous random variable
A random value that can take any fractional value within specified ranges, as
The difference between variable revenue and variable cost.
Conversion parity price
Related:Market conversion price
The contractually specified price per share at which a convertible security can be
A security that can be converted into common stock at the option of the security holder,
The risk that the other party to an agreement will default. In an options contract, the risk
Country financial risk
The ability of the national economy to generate enough foreign exchange to meet
Country risk General
Level of political and economic uncertainty in a country affecting the value of loans or
A statistical measure of the degree to which random variables move together.
Covered call writing strategy
A strategy that involves writing a call option on securities that the investor
The length of time for which the customer is granted credit.
The risk that an issuer of debt securities or a borrower may default on his obligations, or that the
A statistical technique wherein several financial characteristics are combined to form a single
Refers to the volatility of returns on international investments caused by events associated
Cumulative probability distribution
A function that shows the probability that the random variable will
Related: Exchange rate risk
Currency risk sharing
An agreement by the parties to a transaction to share the currency risk associated with
Current time to maturity on an outstanding debt instrument.
IOUs created through loan-type transactions - commercial paper, bank CDs, bills, bonds, and
Debt service parity approach
An analysis wherein the alternatives under consideration will provide the firm
Also referred to as credit risk (as gauged by commercial rating companies), the risk that an
Defined contribution plan
A pension plan in which the sponsor is responsible only for making specified
The price fixed by the Clearing house at which deliveries on futures are in invoiced; also the
Contracts such as options and futures whose price is derived from the price of the
Markets for derivative instruments.
A financial security, such as an option, or future, whose value is derived in part from the
Devaluation A decrease in the spot price of the currency
Bond price including accrued interest, i.e., the price paid by the bond buyer.
The period during which a customer can deduct the discount from the net amount of the bill
Non-interest-bearing money market instruments that are issued at a discount and
Discounted payback period rule
An investment decision rule in which the cash flows are discounted at an
Discrete random variable
A random variable that can take only a certain specified set of discrete possible
A statistical process that links the probability of default to a specified set of financial ratios.
After a Treasury auction, there will be many new issues in dealer's hands. As those issues are
Payments from fund or corporate cash flow. May include dividends from earnings, capital
Related: unsystematic risk.
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