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Definition of Tontine

Tontine Image 1


A type of life insurance or annuity first introduced by Lorenzo Tonti, a Neopolitan banker, in France in the 17th century. It consisted of a fund to which a group of persons contribute, the benefits ultimately accruing to the last survivor or to those surviving after a specified time, in equal shares. The only insurance plans available today which we are aware of that display characteristics of a tontine are some children's Registered Educational Savings Plans (RESP's). These plans generally stipulate that if the child who is covered under the plan does not use the accumulated savings to attend an accredited university, then only the principal invested is returned. All growth in the plan is held to be distributed to other plan holders who do go on to attend university.

Related Terms:

12b-1 funds

Mutual funds that do not charge an upfront or back-end commission, but instead take out up to
1.25% of average daily fund assets each year to cover the costs of selling and marketing shares, an
arrangement Allowed by the SEC's Rule 12b-I (passed in 1980).

401k Plan

A retirement plan set up by an employer, into which employees can
contribute the lesser of $13,000 or 15 percent of their pay (as of 2004), which
is excluded from taxation until such time as they remove the funds from the account.

403b Plan

A retirement plan similar to a 401k plan, except that it is designed
specificAlly for charitable, religious, and education organizations that fAll under
the tax-exempt status of 501(c)(3) regulations.

Abandonment option

The option of terminating an investment earlier than originAlly planned.

Acceleration Clause

Clause causing repayment of a debt, if specified events occur or are not met.

Accidental Dismemberment: (Credit Insurance)

Provides additional financial security should an insured person be dismembered or lose the use of a limb as the result of an accident.

Accumulated Benefit Obligation (ABO)

An approximate measure of the liability of a plan in the event of a
termination at the date the calculation is performed. Related: projected benefit obligation.

Tontine Image 1

Accumulated depreciation

A contra-fixed asset account representing the portion of the cost of a fixed asset that has been previously charged to expense. Each fixed asset account will have its own associated accumulated depreciation account.

accumulated depreciation

A contra, or offset, account that is coupled
with the property, plant, and equipment asset account in which the original
costs of the long-term operating assets of a business are recorded.
The accumulated depreciation contra account accumulates the amount of
depreciation expense that is recorded period by period. So the balance in
this account is the cumulative amount of depreciation that has been
recorded since the assets were acquired. The balance in the accumulated
depreciation account is deducted from the original cost of the assets
recorded in the property, plant, and equipment asset account. The
remainder, cAlled the book value of the assets, is the amount included on
the asset side of a business.

Accumulated depreciation

The sum total of All deprecation expense recognized to date
on a depreciable fixed asset.

Accumulated Other Comprehensive Income

Cumulative gains or losses reported in shareholders'
equity that arise from changes in the fair value of available-for-sale securities, from the
effects of changes in foreign-currency exchange rates on consolidated foreign-currency financial
statements, certain gains and losses on financial derivatives, and from adjustments for underfunded
pension plans.

Accumulated Value

An amount of money invested plus the interest earned on that money.

acid test ratio (also called the quick ratio)

The sum of cash, accounts receivable, and short-term marketable
investments (if any) is divided by
total current liabilities to compute this ratio. Suppose that the short-term
creditors were to pounce on a business and not agree to roll over the
debts owed to them by the business. In this rather extreme scenario, the
acid test ratio reveals whether its cash and near-cash assets are enough
to pay its short-term current liabilities. This ratio is an extreme test that
is not likely to be imposed on a business unless it is in financial straits.
This ratio is quite relevant when a business is in a liquidation situation
or bankruptcy proceedings.

Act of state doctrine

This doctrine says that a nation is sovereign within its own borders and its domestic
actions may not be questioned in the courts of another nation.

ADF (annuity discount factor)

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

After-tax profit margin

The ratio of net income to net sales.

Tontine Image 2

After-tax real rate of return

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

Aggregate planning

A budgeting process using summary-level information to
derive various budget models, usuAlly at the product family level.


a logical step-by-step problem-solving technique
(generAlly requiring the use of a computer) that continuously
searches for an improved solution from the one previously
computed until the best answer is determined

All equity rate

The discount rate that reflects only the business risks of a project and abstracts from the
effects of financing.

All-in cost

Total costs, explicit and implicit.

All or none

Requirement that none of an order be executed unless All of it can be executed at the specified price.

All-or-none underwriting

An arrangement whereby a security issue is canceled if the underwriter is unable
to re-sell the entire issue.


assign based on the use of a cost driver, a cost predictor,
or an arbitrary method


the systematic assignment of an amount to a recipient
set of categories annuity a series of equal cash flows (either positive or negative) per period


The process of storing costs in one account and shifting them to other
accounts, based on some relevant measure of activity.

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

Allowance for bad debts

An offset to the accounts receivable balance, against which
bad debts are charged. The presence of this Allowance Allows one to avoid severe
changes in the period-to-period bad debt expense by expensing a steady amount to
the Allowance account in every period, rather than writing off large bad debts to
expense on an infrequent basis.

Allowance for doubtful accounts

A contra account related to accounts receivable that represents the amounts that the company expects will not be collected.

Allowance for Doubtful Accounts

An estimate of the uncollectible portion of accounts receivable
that is subtracted from the gross amount of accounts receivable to arrive at the estimated collectible

Allowance method

A method of adjusting accounts receivable to the amount that is expected to be collected based on company experience.

American shares

Securities certificates issued in the U.S. by a transfer agent acting on behalf of the foreign
issuer. The certificates represent claims to foreign equities.

Amortization (Credit Insurance)

Refers to the reduction of debt by regular payments of interest and principal in order to pay off a loan by maturity.

Annual fund operating expenses

For investment companies, the management fee and "other expenses,"
including the expenses for maintaining shareholder records, providing shareholders with financial statements,
and providing custodial and accounting services. For 12b-1 funds, selling and marketing costs are included.


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.


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.

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

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.

Authorized shares

Number of shares authorized for issuance by a firm's corporate charter.

Authorized shares

The number of shares of stock that the company is legAlly authorized to sell.

Automated Clearing House (ACH)

A collection of 32 regional electronic interbank networks used to
process transactions electronicAlly with a guaranteed one-day bank collection float.

Automated Clearing House (ACH)

A banking clearinghouse that processes direct
deposit transfers.

Automatic Benefits Payment

Automatic payment of moneys derived from a benefit.

Available-for-Sale Security

A debt or equity security not classified as a held-to-maturity security or a trading security. Can be classified as a current or noncurrent investment depending on the intended holding period.

Average life

Also referred to as the weighted-average life (WAL). The average number of years that each
dollar of unpaid principal due on the mortgage remains outstanding. Average life is computed as the weighted average time to the receipt of All future cash flows, using as the weights the dollar amounts of the principal

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.

Baker Plan

A plan by U.S. Treasury Secretary James Baker under which 15 principal middle-income debtor
countries (the Baker 15) would undertake growth-oriented structural reforms, to be supported by increased
financing from the World Bank and continued lending from commercial banks.

Balanced fund

An investment company that invests in stocks and bonds. The same as a balanced mutual fund.

Balanced mutual fund

This is a fund that buys common stock, preferred stock and bonds. The same as a
balanced fund.

Balloon maturity

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

Banker's acceptance

A short-term credit investment created by a non-financial firm and guaranteed by a
bank as to payment. Acceptances are traded at discounts from face value in the secondary market. These
instruments have been a popular investment for money market funds. They are commonly used in
international transactions.

Bankers Acceptances

A bill of exchange, or draft, drawn by the borrower for payment on a specified date, and accepted by a chartered bank. Upon acceptance, the bill becomes, in effect, a postdated certified cheque.

Basic Earnings Power Ratio

Percentage of earnings relative to total assets; indication of how
effectively assets are used to generate earnings. It is calculated by
dividing earnings before interest and taxes by the book value of All


A signAlling device.

Bellwether issues

Related:Benchmark issues.

Beneficiary (Credit Insurance)

The person or party designated to receive proceeds entitled by a benefit. Payment of a benefit is triggered by an event. In the case of credit insurance, the beneficiary will always be the creditor.

benefits-provided ranking

a listing of service departments in an order that begins with the one providing the most service
to All other corporate areas; the ranking ends with the
service department providing service primarily to revenueproducing

Beta equation (Mutual Funds)

The beta of a fund is determined as follows:
[(n) (sum of (xy)) ]-[ (sum of x) (sum of y)]
[(n) (sum of (xx)) ]-[ (sum of x) (sum of x)]
where: n = # of observations (36 months)
x = rate of return for the S&P 500 Index
y = rate of return for the fund

Beta (Mutual Funds)

The measure of a fund's or stocks risk in relation to the market. A beta of 0.7 means
the fund's total return is likely to move up or down 70% of the market change; 1.3 means total return is likely
to move up or down 30% more than the market. Beta is referred to as an index of the systematic risk due to
general market conditions that cannot be diversified away.

Block house

Brokerage firms that help to find potential buyers or sellers of large block trades.

Borrower (Credit Insurance)

A consumer who borrows money from a lender.

Borrower fallout

In the mortgage pipeline, the risk that prospective borrowers of loans committed to be
closed will elect to withdraw from the contract.

Break-even time

Related: Premium payback period.

Builder buydown loan

A mortgage loan on newly developed property that the builder subsidizes during the
early years of the development. The builder uses cash to buy down the mortgage rate to a lower level than the
prevailing market loan rate for some period of time. The typical buydown is 3% of the interest-rate amount
for the first year, 2% for the second year, and 1% for the third year (also referred to as a 3-2-1 buydown).

Bulldog bond

Foreign bond issue made in London.

Bulldog market

The foreign market in the United Kingdom.


Mortgages in which monthly payments consist of principal and interest, with portions of These
payments during the early period of the loan being provided by a third party to reduce the borrower's monthly

Cafeteria Plan

A flexible benefits plan authorized under the Internal Revenue
Code Allowing employees to pay for a selection of benefits with pay deductions,
some of which may be pretax.

cafeteria plan a “menu” of fringe benefit options that include

cash or nontaxable benefits


An option that gives the right to buy the underlying futures contract.


a. An option to buy a certain quantity of a stock or commodity for a
specified price within a specified time. See Put.
b. A demand to submit bonds to the issuer for redemption before the maturity date.
c. A demand for payment of a debt.
d. A demand for payment due on stock bought on margin.

Call an option

To exercise a cAll option.

Call date

A date before maturity, specified at issuance, when the issuer of a bond may retire part of the bond
for a specified cAll price.

Call money rate

Also cAlled the broker loan rate , the interest rate that banks charge brokers to finance
margin loans to investors. The broker charges the investor the cAll money rate plus a service charge.

Call option

An option contract that gives its holder the right (but not the obligation) to purchase a specified
number of shares of the underlying stock at the given strike price, on or before the expiration date of the
CAll premium
Premium in price above the par value of a bond or share of preferred stock that must be paid to
holders to redeem the bond or share of preferred stock before its scheduled maturity date.

Call Option

A contract that gives the holder the right to buy an asset for a
specified price on or before a given expiration (maturity) date

call option

Right to buy an asset at a specified exercise price on or before the exercise date.

Call price

The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a
specified cAll date.

Call price

The price for which a bond can be repaid before maturity under a cAll provision.

Call protection

A feature of some cAllable bonds that establishes an initial period when the bonds may not be

Call provision

An embedded option granting a bond issuer the right to buy back All or part of the issue prior
to maturity.

Call risk

The combination of cash flow uncertainty and reinvestment risk introduced by a cAll provision.

Call swaption

A swaption in which the buyer has the right to enter into a swap as a fixed-rate payer. The
writer therefore becomes the fixed-rate receiver/floating rate payer.


A financial security such as a bond with a cAll option attached to it, i.e., the issuer has the right to
cAll the security.

Callable bond

A bond that Allows the issuer to buy back the bond at a
predetermined price at specified future dates. The bond contains an embedded
cAll option; i.e., the holder has sold a cAll option to the issuer. See Puttable

callable bond

Bond that may be repurchased by the issuer before maturity at specified cAll price.

Canada Pension Plan (CPP)

A plan that provides retirement and long term disability income benefits to residents of Canadian provinces (excluding Quebec).

Canada Savings Bonds

A bond issued each year by the federal government. These bonds can be cashed in at any time for their full face value.







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