 Financial Terms Scale

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# Definition of Scale ## Scale

A bank that offers to pay different rates of interest on CDs of varying rates is said to "post a scale."
Commercial paper dealers also post scales.

# Related Terms:

## Economies of scale

The decrease in the marginal cost of production as a plant's scale of operations increases.

## Logarithmic Scale

A scale in which equal proportions are shown as equal distances so that, for example, a doubling from 2 to 4 is represented by one inch, as is a doubling from 4 to 8.

## Ratio Scale

See logarithmic scale.

## Scale enhancing

Describes a project that is in the same risk class as the whole firm.

## Scale in

When a trader or investor gradually takes a position in a security or market over time.

## Correlation coefficient

A statistic in which the covariance is scaled to a
value between minus one (perfect negative correlation) and plus one (perfect
positive correlation).

## Decile rank

Performance over time, rated on a scale of 1-10.1 indicates that a mutual fund's return was in the
top 10% of funds being compared, while 3 means the return was in the top 30%. Objective Rank compares all
funds in the same investment strategy category. All Rank compares all funds. ## Depression

A prolonged period of very low economic activity with large-scale unemployment.

## discounted cash flow (DCF)

Refers to a capital investment analysis technique
that discounts, or scales down, the future cash returns from an
investment based on the cost-of-capital rate for the business. In essence,
each future return is downsized to take into account the cost of capital
from the start of the investment until the future point in time when the
return is received. Present value (PV) is the amount resulting from discounting
the future returns. Present value is subtracted from the entry
cost of the investment to determine net present value (NPV). The net
present value is positive if the present value is more than the entry cost,
which signals that the investment would earn more than the cost-ofcapital
rate. If the entry cost is more than the present value, the net
present value is negative, which means that the investment would earn
less than the business’s cost-of-capital rate.

## Escalating Price Option

A nonqualified stock option that uses a sliding scale for
the option price that changes in concert with a peer group index.

## Management fee

An investment advisory fee charged by the financial advisor to a fund based on the fund's
average assets, but sometimes determined on a sliding scale that declines as the dollar amount of the fund increases.

## Premium Offset

After premiums have been paid for a number of years, further annual premiums may be paid by the current dividends and the surrender of some of the paid-up additions which have built up in the policy. In effect, the policy can begin to pay for itself. Whether a policy becomes eligible for premium offset, the date on which it becomes eligible and whether it remains eligible once premium offset begins, will all depend on how the dividend scale changes over the years. Since dividends are not guaranteed, premium offset cannot be guaranteed either.

## tiered interest rate

A pre-set scale of interest which is based on the premise that higher sums of money earn higher rates of interest.

## Volatility

A measure of risk based on the standard deviation of investment fund performance over 3 years.
scale is 1-9; higher rating indicates higher risk. Also, the standard deviation of changes in the logarithm of an
asset price, expressed as a yearly rate. Also, volatility is a variable that appears in option pricing formulas. In
the option pricing formula, it denotes the volatility of the underlying asset return from now to the expiration
of the option.
Std Deviation = Rating
up to 7.99 = 1
8.00-10.99 = 2
11.00-13.99 = 3
14.00-16.99 = 4
17.00-19.99 = 5
20.00-22.99 = 6
23.00-25.99 = 7
26.00-28.99 = 8
29.00 and up = 9

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