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what is an alternative depreciation system ads | an alternative depreciation system ads is one of the methods the internal revenue service irs requires taxpayers to use to determine the depreciation allowed on business assets an ads has a depreciation schedule with a longer recovery period that generally better mirrors the asset s income streams than declining balance depreciation if the taxpayer elects to use an alternative depreciation system they must apply it to all property of the same class placed in service during the same year understanding when to use ads is important for business owners because accurately calculating depreciation expenses can help lower business taxes however the irs rules regarding ads can be complex for this reason many business owners opt to hire a tax professional to ensure they take as much depreciation expense as the irs allows understanding alternative depreciation system ads depreciation is an accounting method that allows businesses to spread out the cost of a physical asset over a specified number of years which is known as the useful life of the asset the useful life of an asset is an estimate of the number of years a company will use that asset to help generate revenue the irs allows businesses to depreciate many kinds of business assets including computers and peripherals office furniture fixtures and equipment automobiles and manufacturing equipment taxpayers who elect to use the alternative depreciation system feel that the alternative schedule will allow for a better match of depreciation deductions against income than the recovery period under the general depreciation system while the ads method extends the number of years an asset can be depreciated it also decreases the annual depreciation cost the depreciation amount is set at an equal amount each year with the exception of the first and last years which are generally lower because they do not include a full twelve months taxpayers need to be cautious about selecting the alternative depreciation system according to irs rules once a taxpayer has chosen to use the alternative depreciation system for an asset they can t switch back to the general depreciation system alternative depreciation system ads vs general depreciation system gds for property placed in service after 1986 the irs requires that taxpayers use the modified accelerated cost recovery system macrs to depreciate property there are two methods that fall under the macrs the general depreciation system gds and the alternative depreciation system ads the alternative depreciation system offers depreciation over a longer period of time than the general depreciation system which is a declining balance method the general depreciation system is often used by companies to depreciate assets that tend to become obsolete quickly and are replaced with newer versions on a fairly frequent basis computers and phone equipment are examples of this the general depreciation system allows companies to accelerate the asset s depreciation rate by recording a larger depreciation amount during the early years of an asset s useful life and smaller amounts in later years the general depreciation system is more commonly used than the alternative depreciation system special considerationsthe tax implications of calculating depreciation can affect a company s profitability for this reason business owners need to carefully consider the pros and cons of ads versus gds since the alternative depreciation system offers depreciation over a longer course of time the yearly deductions for depreciation are smaller than with the other method taxpayers who choose the alternative depreciation system schedule must use this schedule for all property of the same class that was placed in service during the taxable year however taxpayers may elect the alternative depreciation system schedule for real estate on a property by property basis the alternative depreciation system recovery schedule is listed in irs publication 946 | |
what is an alternative investment | an alternative investment is a financial asset that does not fall into one of the conventional investment categories conventional categories include stocks bonds and cash alternative investments can include private equity or venture capital hedge funds managed futures art and antiques commodities and derivatives contracts real estate is also often classified as an alternative investment investopedia nono floresunderstanding alternative investmentsmost alternative investment assets are held by institutional investors or accredited high net worth individuals because of their complex nature lack of regulation and degree of risk many alternative investments have high minimum investments and fee structures especially when compared to mutual funds and exchange traded funds etfs these investments also have less opportunity to publish verifiable performance data and advertise to potential investors although alternative assets may have high initial minimums and upfront investment fees transaction costs are typically lower than those of conventional assets due to lower levels of turnover most alternative assets are fairly illiquid especially compared to their conventional counterparts for example investors are likely to find it considerably more difficult to sell an 80 year old bottle of wine compared to 1 000 shares of apple inc due to a limited number of buyers investors may have difficulty even valuing alternative investments since the assets and transactions involving them are often rare for example a seller of a 1933 saint gaudens double eagle 20 gold coin may have difficulty determining its value as there are only 11 known to exist and only one can be legally owned 12types of alternative investmentsreal estate as an investment includes investing in physical properties or property based securities it can also include investing in real estate crowdfunding platforms real estate investment trusts reits and real estate mutual funds in addition to capital appreciation of tangible assets investors strive for operating income to potentially provide ongoing stable cash flow commodities are raw materials such as gold silver oil or agricultural products investors can invest in these tangible goods that have real world uses and often perpetual demand due to the underlying characteristics of what they are for example gold s price is arguably more stable because it is used in a variety of industries and is considered a store of value a blend of real estate and commodities investors can turn to farmland as an alternative investment in addition to reaping the benefits of physical tangible land farm owners may also receive ongoing cash proceeds should operations and sales of commodities yield positive results some investments may double as a hobby with art sports memorabilia entertainment memorabilia high end watches or other collectibles acting as alternative investments these items may have historical worth or develop worth over time as related parties i e the artist the associated movie star or the associated athlete become more historic the emerging form of digital currency cryptocurrency is seen as an alternative investment as it is outside the traditional scope of stocks and bonds though some may claim cryptocurrency does not offer a strong hedge against other risk on investments it may provide capital appreciation or passive income due to staking rewards blurring the lines of an alternative investment venture capital or private equity is simply a refined branch of stock investments instead of trading shares of public companies in an open market investors may seek alternative avenues to put capital into private companies or start ups investing in peer to peer lending translates to making loans to individuals or businesses through online platforms that connect borrowers with investors peer to peer lending takes a very similar form to investing in bonds though it is done on more private markets and often entails transacting with riskier clients there is a potential for higher returns though not always the term alternative investment simply refers to an investment being alternative to stocks bonds and cash both an unboxed star wars figurine with appreciating value and a rundown local warehouse may fall into the definition of an alternative investment regulation of alternative investmentseven when they don t involve unique items like coins or art alternative investments are prone to investment scams and fraud due to the lack of regulations alternative investments are often subject to a less clear legal structure than conventional investments they do fall under the purview of the dodd frank wall street reform and consumer protection act and their practices are subject to examination by the u s securities and exchange commission sec 3however they usually don t have to register with the sec as such they are not overseen or regulated by the sec as are mutual funds and etfs 4so investors must conduct extensive due diligence when considering alternative investments in some cases only accredited investors may invest in alternative offerings accredited investors are those with a net worth exceeding 1 million not counting their primary residence or with an annual income of at least 200 000 or 300 000 combined with a spousal income in each of the two previous years financial professionals who hold finra series 7 65 or 82 licenses may also qualify as accredited investors 5advantages and disadvantages of alternative investmentsbecause of their unique nature and differences from traditional markets alternative investments may have low correlations to traditional investments such as stocks and bonds therefore investors most often turn to alternatives to potentially help diversify an investment portfolio and reduce overall portfolio risk since alternatives are considered riskier investments they often have the potential for higher returns compared to traditional investments in addition alternative investments come in different forms and structures giving investors the flexibility to choose the investment that best suits their preferences risk appetite and investment goals for instance investors may favor certain cryptocurrencies based on passive income opportunities alternative investments may provide access to markets that are not available through traditional investments not only may investors find this more interesting i e a baseball enthusiast may attach more passion to buying an autographed baseball but that investor may find it more difficult to sell that collectible because there are likely to be fewer buyers making the market less liquid this may be perceived as a benefit as this may enhance the price stability amongst investors as there is less of an opportunity to panic sell transacting quickly based on emotion because of their limited accessibility alternative investments often have higher fees and expenses compared to traditional investments for example private equity and hedge funds typically charge high management and performance fees which can significantly reduce investors returns whereas many brokers offer free trades of a number of stocks and bonds many alternative investment products come at a cost 6as mentioned earlier alternative investments are often illiquid which may be a benefit however consider the situation where an investor needs to quickly sell a rare piece of movie memorabilia because they need the cash because there may not be an active or large market they may not be able to easily or quickly sell the item without incurring significant transaction costs or loss of value because alternative investments may not be commonly publicly traded it may be more difficult to obtain market data on historical trends or pricing whereas public companies must comply with many reporting rules some alternative investments may be subject to less regulatory oversight and have a higher risk of fraud misconduct and other abuses also mentioned above alternative investments tend to carry higher returns though this is a function of being riskier investments alternative investments are also more often complex some may have complex structures and terms that can be difficult for investors to understand increasing the risk of making uninformed or inappropriate investment decisions others may have no readily available market prices making it difficult to determine their true value may offer diversification benefitsoften have higher return potential than traditional investmentsmay offer protection against inflationmay offer investors more specialty investment optionsmay be less liquid and more difficult to sell in a hurryoften associated with higher fees and transaction costsoften have higher risk than traditional investmentsoften lacks transparency and may have reduced regulationmay not be right for novice investors due to their complexitymay be illiquid | |
how to invest in alternative investments | getting started with investing in alternative investments is very different based on the asset you re working with some may require substantial capital and research others may simply require a few clicks of a mouse button very broadly speaking here s how to get started with several types of alternatives as most alternative investments incur a transaction or processing fee be mindful of maintenance or one time fees when pursuing alternatives tax implications of alternative investmentsbecause they represent an entirely different asset class compared to stocks and bonds many alternative investment industries have different tax rules in addition consider how different alternatives may have different income streams i e capital gain on the sale of a rental property in addition to rent revenue some alternative investments such as collectibles and art may not offer the same tax deductions as traditional investments like stocks and bonds in addition collectibles such as art or coins are explicitly defined by the irs as a collectible and net capital gains are subject to a maximum 28 tax rate 7the alternative investment industry is expected to grow to 24 5 trillion in assets under management by 2028 8cryptocurrency and other digital asset tax rules continue to evolve digital assets such as virtual currency cryptocurrency stablecoins and non fungible tokens may incur taxable transactions when selling the asset for fiat exchanging the asset for goods or services or exchanging the asset for another digital asset in addition whereas fluctuations in the value of the u s dollar would not incur a taxable event fluctuations in the value of digital assets often result in capital gains or losses 97some alternative investments such as real estate and certain types of energy investments may offer tax deferred or tax free investing options this may include 1031 exchanges and opportunity zone investments where investors can use proceeds from the sale of an alternative asset to invest in a similar or specific asset with those proceeds to avoid taxes 1011as you embark on your alternative investment journey consider talking with a financial advisor in addition to a tax advisor to best understand how to protect your asset and ensure maximum efficiency in protecting returns read about investopedia s 10 rules of investing by picking up a copy of our special issue print edition | |
what are the key characteristics of alternative investments | alternative investments tend to have high fees and minimum investment requirements compared to retail oriented mutual funds and etfs they also tend to have lower transaction costs and it can be harder to get verifiable financial data for these assets alternative investments also tend to be less liquid than conventional securities meaning that it may be difficult to value some of the more unique assets because they are so thinly traded | |
how can alternative investments be useful to investors | some investors seek out alternative investments because they have a low correlation with the stock and bond markets meaning that they may maintain their values in a market downturn also hard assets such as gold oil and real property are effective hedges against inflation for these reasons many large institutions such as pension funds and family offices seek to diversify some of their holdings into alternative investment vehicles | |
what are the regulatory standards for alternative investments | regulations for alternative investments are less clear than they are for more traditional securities although alternative investment vehicles are regulated by the sec their securities do not have to be registered as a result most of these investment vehicles are only available to institutions or wealthy accredited investors the bottom linealternative investments are investment options outside of traditional investments such as stocks bonds and cash alternative investments may include a wide range of assets such as real estate commodities private equity hedge funds art collectibles or cryptocurrencies these investments are generally less liquid than traditional investments though they may boast diversification and higher returns compared to more popular forms of investing | |
what is the alternative minimum tax | an alternative minimum tax amt places a floor on the percentage of taxes that a filer must pay to the government no matter how many deductions or credits the filer may claim the united states currently has an alternative minimum tax for taxpayers who earn above certain income thresholds the amt recalculates income tax after adding certain tax preference items back into adjusted gross income it uses a separate set of rules to calculate taxable income after allowed deductions preferential deductions are added back into the taxpayer s income to calculate their alternative minimum taxable income amti and then the amt exemption is subtracted to determine the final taxable figure 1 | |
how the alternative minimum tax works | the difference between a taxpayer s alternative minimum taxable income and his amt exemption is taxed using the relevant rate schedule this yields the tentative minimum tax tmt if the tentative minimum tax is higher than the taxpayer s regular tax liability for the year then they pay the regular tax and the amount by which the tentative minimum tax exceeds the regular tax in other words the taxpayer pays the full tentative minimum tax 1there are two alternative minimum tax rates 26 and 28 for 2023 the 28 rate applies to the excess alternative minimum taxable income of 220 700 or more for all taxpayers 110 350 for married couples filing separate returns for 2024 the 28 rate applies to the excess alternative minimum taxable income of 232 600 or more for all taxpayers 116 300 for married couples filing separate returns the 26 rate applies to incomes up to those levels 56a taxpayer who has a high income and uses large tax breaks may owe a smaller percentage under the standard rules if so the taxpayer is obliged to recalculate the taxes owed under the alternative minimum tax system which eliminates some of those tax breaks the taxpayer will owe whichever amount is higher 7 the first individual minimum tax was enacted in 1969 and was an add on minimum tax that is it was a tax that was paid in addition to the regular income tax the tax rate for the add on minimum tax was 10 and its tax base consisted of eight tax preference items the most significant of these tax preference items was the portion of capital gains income that was excluded from the regular income tax congressional research service8amt exemption amountsfor tax year 2023 the figures are 81 300 for single filers and 126 500 for married joint filers for tax year 2024 the amt exemption for single filers is 85 700 for married joint filers the figure is 133 300 3taxpayers have to complete form 6251 to see whether they might owe amt first they subtract the exemption amount from their income if their amt is less than the exemption they do not have to pay amt 1it s important to note though that taxpayers with amti over a certain threshold do not qualify for the amt exemption for tax year 2023 the phase out begins at 578 150 for single filers and 1 156 300 for tax year 2024 the phase out begins at 609 350 for single filers and 1 218 700 for couples filing jointly 3purpose of amtamt is designed to prevent taxpayers from escaping their fair share of tax liability through tax breaks however in the past the structure was not indexed to inflation or tax cuts this can cause bracket creep a condition in which middle income taxpayers could be subject to this tax instead of just the wealthy taxpayers for whom amt was invented 9 in 2012 however congress passed a law indexing the amt exemption amount to inflation 4calculating amtto determine if they owe amt individuals can use tax software that automatically does the calculation or they can fill out irs form 6251 this form takes medical expenses home mortgage interest and several other miscellaneous deductions into account to help tax filers determine if their deductions are beyond an overall limit set by the irs 1011the form also requests information on certain types of income such as tax refunds investment interest and interest from private activity bonds as well as numbers corresponding with capital gains or losses related to the disposition of property the irs has specific formulas in place to determine which portion of this income and deductions the tax filers need to note on form 6251 it uses another set of formulas to determine how these numbers lead to amti 10 | |
what is the amt | it s a tax that applies to high income individuals who otherwise under the standard u s tax system might pay little or even no taxes essentially it involves an alternate tax system that is used in addition to the standard system each calculates tax owed the taxpayer pays whichever is greater 1 | |
what is the amt exemption for tax years 2022 and 2023 | for tax year 2023 the amt exemption for individuals is 81 300 and 126 500 for married couples filing jointly for tax year 2024 the figures are 85 700 and 133 300 respectively 3 | |
does the amt account for inflation | yes but it only did so periodically before the passage of the american taxpayer relief act of 2012 with that legislation the amt was to be permanently indexed to inflation the tax cuts and jobs act of 2017 also increased the amt exemption and the income level at which the exemption began to phase out this reduced the number of people affected by the amt these changes expire after 2025 12the bottom linethe alternative minimum tax is an additional or parallel tax system in the u s that is designed to ensure that high income individuals pay their fair share of taxes prior to the amt certain taxpayers paid little in the way of taxes due to preferential treatment of certain income and expenses or tax breaks | |
what is an alternative trading system ats | an alternative trading system ats is a trading venue that is more loosely regulated than an exchange ats platforms are often used to match large buy and sell orders among their subscribers the most widely used type of ats in the united states is an electronic communication network ecn a computerized system that automatically matches buy and sell orders for securities in the market understanding an alternative trading system ats atss account for much of the liquidity found in publicly traded issues worldwide they are known as multilateral trading facilities in europe ecns cross networks and call networks most atss are registered as broker dealers rather than exchanges and focus on finding counterparties for transactions unlike some national exchanges atss do not set rules governing the conduct of subscribers or discipline subscribers other than by excluding them from trading they are important in providing alternative means to access liquidity institutional investors may use an ats to find counterparties for transactions instead of trading large blocks of shares on national stock exchanges these actions may be designed to conceal trading from public view since ats transactions do not appear on national exchange order books the benefit of using an ats to execute such orders is that it reduces the domino effect that large trades might have on the price of an equity alternative trading system ats is the terminology used in the u s and canada in europe they are known as multilateral trading facilities criticisms of alternative trading systems atss these trading venues must be approved by the sec regulators have stepped up enforcement actions against atss for infractions such as trading against customer order flow or making use of confidential customer trading information these violations may be more common in atss than in national exchanges because atss face fewer regulations 1a hedge fund interested in building a large position in a company may use an ats to prevent other investors from buying in advance atss used for these purposes may be referred to as dark pools dark pools entail trading on an ats by institutional orders executed on private exchanges information about these transactions is mostly unavailable to the public which is why they are called dark the bulk of dark pool liquidity is created by block trades facilitated away from the central stock market exchanges and conducted by institutional investors primarily investment banks although they are legal dark pools operate with little transparency as a result dark pools along with high frequency trading hft are oft criticized by those in the finance industry some traders believe that these elements convey an unfair advantage to certain players in the stock market regulation of alternative trading systems atss sec regulation ats established a regulatory framework for atss an ats meets the definition of an exchange under federal securities laws but is not required to register as a national securities exchange if the ats operates under the exemption provided under exchange act rule 3a1 1 a to operate under this exemption an ats must comply with the requirements in rules 300 303 of regulation ats 2to comply with regulation ats an ats must register as a broker dealer and file an initial operation report with the commission on form ats before beginning operations an ats must file amendments to form ats to provide notice of any changes to its operations and must file a cessation of operation report on form ats if it closes the requirements for filing reports using form ats are in rule 301 b 2 of regulation ats these requirements include mandated reporting of books and records 3there have been moves to make ats more transparent for example the sec amended regulation ats to enhance operational transparency for such systems in 2018 among other things this entails filing detailed public disclosures to inform the general public about potential conflicts of interest and risks of information leakage atss are also required to have written safeguards and procedures to protect subscribers trading information 4the sec formally defines an alternative trading system as any organization association person group of persons or systems 1 that constitutes maintains or provides a marketplace or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange within the meaning of rule 3b 16 under the exchange act and 2 that does not i set rules governing the conduct of subscribers other than the conduct of such subscribers trading on such organization association person group of persons or system or ii discipline subscribers other than by exclusion from trading 2 | |
what is the difference between otc and ats | over the counter otc securities are securities that are not listed on an exchange they trade between parties directly most of these trades are completed on alternative trading systems ats atss show quotes from broker dealers for otc securities there are two such interdealer quotation systems global otc ats and otc link ats | |
what is the difference between an exchange and an ats | a stock exchange is a heavily regulated marketplace that brings together buyers and sellers to trade listed securities an ats is an electronic venue that also brings buyers and sellers together however it does not have any regulatory responsibilities though it is regulated by the sec and trades both listed and unlisted securities | |
how do alternative trading systems make money | alternative trading systems make money by charging fees and commissions for transactions the more trades a trader makes the more cost to them and more sales revenue for the ats the bottom linealternative trading systems atss facilitate large buy and sell orders between parties usually institutional investors which helps keep such trades private and limits the impact that such large orders would have on the price of a security in the open public markets | |
what is the altman z score | the altman z score is the output of a credit strength test that gauges a publicly traded manufacturing company s likelihood of bankruptcy investopedia laura porterunderstanding the altman z scorethe altman z score a variation of the traditional z score in statistics is based on five financial ratios that can be calculated from data found on a company s annual 10 k report it uses profitability leverage liquidity solvency and activity to predict whether a company has a high probability of becoming insolvent nyu stern finance professor edward altman developed the altman z score formula in 1967 and it was published in 1968 over the years altman has continued to reevaluate his z score from 1969 until 1975 altman looked at 86 companies in distress then 110 from 1976 to 1995 and finally 120 from 1996 to 1999 finding that the z score had an accuracy of between 82 and 94 1in 2012 he released an updated version called the altman z score plus that one can use to evaluate public and private companies manufacturing and non manufacturing companies and u s and non u s companies one can use altman z score plus to evaluate corporate credit risk the altman z score has become a reliable measure of calculating credit risk 2 | |
how to calculate the altman z score | one can calculate the altman z score as follows altman z score 1 2a 1 4b 3 3c 0 6d 1 0e | |
where | a score below 1 8 means it s likely the company is headed for bankruptcy while companies with scores above 3 are not likely to go bankrupt investors can use altman z scores to determine whether they should buy or sell a stock if they re concerned about the company s underlying financial strength investors may consider purchasing a stock if its altman z score value is closer to 3 and selling or shorting a stock if the value is closer to 1 8 3in more recent years however a z score closer to 0 indicates a company may be in financial trouble in a lecture given in 2019 titled 50 years of the altman score professor altman himself noted that recent data has shown that 0 not 1 8 is the figure at which investors should worry about a company s financial strength 4 the two hour lecture is available to view for free on youtube 2008 financial crisisin 2007 the credit ratings of specific asset related securities had been rated higher than they should have been the altman z score indicated that the companies risks were increasing significantly and may have been heading for bankruptcy altman calculated that the median altman z score of companies in 2007 was 1 81 these companies credit ratings were equivalent to a b this indicated that 50 of the firms should have had lower ratings were highly distressed and had a high probability of becoming bankrupt 5altman s calculations led him to believe a crisis would occur and there would be a meltdown in the credit market he believed the crisis would stem from corporate defaults but the meltdown which brought about the 2008 financial crisis began with mortgage backed securities mbs 6 however corporations soon defaulted in 2009 at the second highest rate in history 7 | |
how is the altman z score calculated | the altman z score a variation of the traditional z score in statistics is based on five financial ratios that can be calculated from data found on a company s annual 10 k report the formula for altman z score is 1 2 working capital total assets 1 4 retained earnings total assets 3 3 earnings before interest and tax total assets 0 6 market value of equity total liabilities 1 0 sales total assets | |
how should an investor interpret the altman z score | investors can use altman z score plus to evaluate corporate credit risk a score below 1 8 signals the company is likely headed for bankruptcy while companies with scores above 3 are not likely to go bankrupt investors may consider purchasing a stock if its altman z score value is closer to 3 and selling or shorting a stock if the value is closer to 1 8 in more recent years altman has stated a score closer to 0 rather than 1 8 indicates a company is closer to bankruptcy did the altman z score predict the 2008 financial crisis in 2007 altman s z score indicated that the companies risks were increasing significantly the median altman z score of companies in 2007 was 1 81 which is very close to the threshold that would indicate a high probability of bankruptcy altman s calculations led him to believe a crisis would occur that would stem from corporate defaults but the meltdown which brought about the 2008 financial crisis began with mortgage backed securities mbs however corporations soon defaulted in 2009 at the second highest rate in history | |
what is always be closing abc | always be closing abc is a motivational phrase used to describe a sales person s strategy for success it implies that a salesperson should continuously be looking for new prospects pitching products or completing transactions as a strategy abc requires that the salesperson be persistent but also know when to cut their losses and move on to another prospect understanding always be closing abc the phrase always be closing was popularized in the 1992 film glengarry glen ross starring alec baldwin al pacino jack lemmon and kevin spacey it was a dark drama written by david mamet based on his pulitzer prize winning play that emphasized the cutthroat side of the sales industry in the film an aggressive representative from the corporate office baldwin is brought in to motivate a group of real estate agents telling them to sell more property or be fired flaunting his own wealth and success he delivers a profanity laced tirade accusing the sales team of being timid and unmotivated during his speech he flips over a blackboard on which the words always be closing are written and repeats the phrase several times the desperate salespeople resort to a host of unethical tactics to achieve their sales numbers the scene is echoed in the 2000 film boiler room set in a stock brokerage firm a sales trainer mentoring a young stockbroker asks the trainee if he s seen glengarry glen ross and quizzes him on the meaning of always be closing the effectiveness of abcthe term has become an example of the kind of pithy phrase that some sales managers use to motivate staff and drive home the importance of tenacity it serves as a reminder that every action a salesperson takes with a prospective client should move the discussion toward a successful close from the initial rapport building stage to uncovering the customer s needs and positioning the product the representative should be closing the entire time working toward the moment that the customer pulls out a checkbook always be closing may be a relic of an earlier time many of today s consumers might tune out sales pitches in favor of online product research | |
is abc losing its punch | the abc sales method may have lost some of its effectiveness in real life a 2018 study by cso insights an independent research and data provider indicated that successful salespeople spent at most 35 of their time selling or closing deals 1 the research found that lead generation customer follow up strategy and planning sessions and administrative tasks took up most of their time a report in investementnews com suggests that contemporary consumers are well armed against the abc method 2 mamet s play was first staged in 1984 and was filmed in 1992 today s consumers prefer to shop around and do their research before making purchases they re less susceptible to slick sales pitches than earlier generations | |
does the always be closing strategy work | the always be closing sales strategy certainly has its drawbacks first some people bolt at the first sign of aggressive sales tactics others can be bullied into a sale but they may back out later if they can even if they don t the always be closing strategist is leaving behind a trail of dissatisfied customers and that s bad for business 3 | |
what is the alternative to the always be closing strategy | modern salespeople have learned that a high pressure sales pitch doesn t work well with a customer base that has the full resources of the internet at its fingertips today s alternative mantra might be always be helping this suggests that a salesperson s goal is to find out what the customer needs and wants and tailor the message to how a product can meet those needs and wants 4 | |
what do salespeople say is most important to making a sale | modern thinking in marketing is that every sale should start with understanding the individual customer and identifying a problem that the customer has that this product can solve the abc method suggests that consumers are interchangeable and that a certain number of them can be bullied into a sale the alternatives involve listening to the consumer 5the bottom linethe hard sell tactics of the always be closing strategy have largely gone out of style since their heyday in the 1990s today s sales professionals are better off listening to their customers identifying their needs and providing solutions better than their competitors can | |
what is an amalgamation | an amalgamation is the combination of two or more companies into an entirely new entity amalgamations are distinct from acquisitions in that none of the companies involved in the transaction survive as a legal entity instead a completely new entity with the combined assets and liabilities of the former companies is born the term amalgamation has generally fallen out of popular use in the united states being replaced with terms like merger or consolidation with which it can be synonymous however it is still commonly used in certain countries such as india | |
how amalgamations work | amalgamations typically happen between two or more companies engaged in the same line of business or that share some similarity in their operations usually the process involves a larger entity called a transferee company absorbing one or more smaller transferor companies before creating the new entity the terms of an amalgamation are finalized by the board of directors of each company involved the plan is prepared and submitted to regulators for approval in india for example that authority resides in the high court and securities and exchange board of india sebi indian tax law defines amalgamation somewhat broadly as the merger of one or more companies with another company or the merger of two or more companies to form one company it refers to the merging companies as the amalgamating company or companies while the company they merge with or which is newly formed as a result of the merger is the amalgamated company 1in canada amalgamations must be approved by corporations canada and the relevant provincial and territorial governments canada defines amalgamation as when two or more corporations known as predecessor corporations combine their businesses to form a new successor corporation 2once approved the new company officially becomes a legal entity and can issue shares of stock in its own name the pros and cons of amalgamationsamalgamation is a way businesses can amalgamation may also increase shareholder value reduce risk through diversification improve managerial effectiveness and help the new company achieve financial results and levels of growth that would have been more difficult for its predecessor companies on the other hand if too much competition is eliminated amalgamation may lead to a monopoly which can be troublesome for consumers and the marketplace and bring about government intervention it may also lead to a reduction in the new company s workforce by making some former employees redundant costing them their jobs in addition it can increase debt possibly to a dangerous level by combining two or more companies together the new entity assumes the liabilities of all involved can improve competitivenessmay reduce taxesachieves economies of scale | |
has potential to increase shareholder value | diversifies the businesscan concentrate too much power into a monopolistic companymay lead to job lossesmight increase the new company s debt loadexample of amalgamationin april 2022 the telecom giant at t and the television entertainment company discovery inc announced they had finalized a deal to combine at t s warnermedia business unit with discovery that month a new entity known as warner bros discovery inc began trading on the nasdaq stock exchange under the symbol wbd 3in accounting amalgamations may also be referred to as consolidations amalgamation vs acquisitionas mentioned in a typical amalgamation two or more companies agree to combine their assets and liabilities and form an entirely new company in an acquisition by contrast one company purchases another usually by buying up enough of its stock and takes on its assets and liabilities with no new company being created while amalgamations tend to involve voluntary agreements between the different parties acquisitions can occur without the assent of the acquired company in what s known as a hostile takeover | |
what is the objective of an amalgamation | in general the objective of an amalgamation is to establish a unique entity capable of more effectively competing in the marketplace while also achieving economies of scale in that respect it is not all that different from an acquisition and similar strategies to aid corporate growth | |
what are the methods of accounting for amalgamation | there are two primary ways to account for an amalgamation in some countries the pooling of interests method which uses book values and the purchase method which uses fair market values in the united states the financial accounting standards board fasb put an end to the use of the pooling of interests method in 2001 requiring combining companies to use only the purchase method in 2007 however the fasb adopted a new standard known as the purchase acquisition accounting method | |
what is an amalgamation reserve in accounting | in accounting the amalgamation reserve is the amount of cash left over at the new entity after the amalgamation is completed if this amount is negative it will be booked as goodwill the bottom lineamalgamations are one of several ways existing companies can join forces and create an entirely new company while the term is rarely heard in the u s today the practice continues both there and elsewhere around the world amalgamation can also refer to the combining of other types of organizations into a single one such as nonprofit groups and entities in the public sector including government agencies and municipalities 4 | |
what is an amended return | an amended return is a form filed in order to make corrections to a tax return from a previous year an amended return can correct errors and claim a more advantageous tax status such as a refund for example one might choose to file an amended return in instances of misreported earnings or tax credits mathematical errors however do not require amendments because the irs automatically corrects for such errors when processing the tax return 1who should file an amended return all taxpayers are required to file their taxes annually for the previous tax year 4 taxpayers may realize that they made a mistake in filling out their tax forms or their circumstances may have changed after they have submitted or mailed a return that has been accepted by the government if this occurs the internal revenue service irs has provided a way for these individuals to redo their taxes by providing an amended return form form 1040 x on the irs website 5an amended tax return can be filed even after the tax filing deadline for the tax year has passed 6not all errors need amending by the form the irs will spot and correct a mathematical error for example when the initial tax return is sent in for processing when this happens any refund owed will be adjusted and any extra tax liability due will be billed to the taxpayer 1 in the event that the individual fails to include a required form or schedule in their submitted original tax return the irs will send a letter requesting that they mail the missing information to one of their offices 7 | |
when to file an amended return | a taxpayer must file an amended return if | |
how to amend a tax return | form 1040 x has three columns a b and c under column a the figure that was reported in the original or last amended tax form is recorded the taxpayer will need to input the adjusted or correct number in column c the difference between columns a and c is reflected in column b the adjustments made to a tax return will either result in a tax refund balance due or no tax change the taxpayer also has to explain what changes they are making and the reasons for making each change in a section provided on the back of form 1040 x disadvantages of an amended tax returnthe drawback of filing an amended tax return is that form 1040 x cannot be submitted electronically for every tax year although the irs has recently started accepting e filed amended returns for tax year 2019 1213 if filling out the form manually the taxpayer has to mail the printed out document to the irs service center that processed the original tax form the irs manually processes amended returns and the process can take 16 weeks or even longer if the amended return is not signed is incomplete has errors requires additional information needs clearance by the irs bankruptcy department has been routed to another specialized area or has been affected by identity fraud 14there is however a three year statute of limitations for issuing tax refund checks therefore the taxpayer must file any amended returns that will result in a tax refund within three years after the date they filed the original tax return 6 an amended return filed to account for additional income or overstated deductions does not fall under any such statute and can be filed at any time you can correct errors on an amended tax return you can claim a refund you were owed even if you didn t file for it you can correct for circumstances that changed since you originally filed | |
what is an american depositary receipt adr | american depositary receipts adrs are negotiable certificates issued by a u s depositary bank representing a specified number of shares usually one share of a foreign company s stock the adr trades on u s stock markets as any domestic shares would adrs offer u s investors a way to purchase stock in overseas companies that would not otherwise be available foreign firms also benefit as adrs enable them to attract american investors and capital without the hassle and expense of listing on u s stock exchanges investopedia tara anand | |
how american depositary receipts adrs work | american depositary receipts are denominated in u s dollars the underlying security is held by a u s financial institution often by an overseas branch these securities are priced and traded in dollars and cleared through u s settlement systems to begin offering adrs a u s bank must purchase shares on a foreign exchange the bank holds the stock as inventory and issues an adr for domestic trading adrs can be listed on the new york stock exchange nyse the nasdaq and over the counter otc 1u s banks require that foreign companies provide them with detailed financial information this requirement makes it easier for american investors to assess a company s financial health types of american depositary receiptsamerican depositary receipts come in two basic categories a bank issues a sponsored adr on behalf of the foreign company the bank and the business enter into a legal arrangement the foreign company usually pays the costs of issuing an adr and retains control while the bank handles the transactions with investors sponsored adrs are categorized by what degree the foreign company complies with securities and exchange commission sec regulations and american accounting procedures 1a bank also issues an unsponsored adr however this certificate has no direct involvement participation or even permission from the foreign company theoretically several unsponsored adrs for the same foreign company could be issued by different u s banks these different offerings may also offer varying dividends with sponsored programs only one adr is issued by the bank working with the foreign company one primary difference between the two types of adrs is where they trade all except the lowest level of sponsored adrs register with the sec and trade on major u s stock exchanges unsponsored adrs will trade only over the counter unsponsored adrs never include voting rights 1the number of adrs available which represent companies from more than 70 different countries 1adrs are additionally categorized into three levels depending on the extent to which the foreign company has accessed the u s markets this is the most basic type of adr where foreign companies either don t qualify or don t want their adr listed on an exchange this type of adr can be used to establish a trading presence but not to raise capital level i adrs found only on the over the counter market have the loosest requirements from the securities and exchange commission sec and are typically highly speculative while they are riskier for investors than other types of adrs they are an easy and inexpensive way for a foreign company to gauge the level of u s investor interest in its securities as with level i adrs level ii adrs can be used to establish a trading presence on a stock exchange and can t be used to raise capital level ii adrs have slightly more requirements from the sec than level i adrs but they get higher visibility and trading volume level iii adrs are the most prestigious with these an issuer floats a public offering of adrs on a u s exchange they can be used to establish a substantial trading presence in the u s financial markets and raise capital for the foreign issuer issuers are subject to full reporting with the sec 1american depositary receipt pricing and costsan adr may represent the underlying shares on a one for one basis a fraction of a share or multiple shares of the underlying company 1 the depositary bank will set the ratio of u s adrs per home country share at a value that they feel will appeal to investors if an adr s value is too high it may deter some investors conversely if it is too low investors may think the underlying securities resemble riskier penny stocks because of arbitrage an adr s price closely tracks that of the company s stock on its home exchange remember that arbitrage is buying and selling the same asset at the same time in different markets this allows traders to profit from differences in the asset s listed price investing in an adr may incur additional fees that are not charged for domestic stocks the depositary bank that holds the underlying stock may charge a fee known as a custody fee to cover the cost of creating and issuing an adr this fee will be outlined in the adr prospectus and typically ranges from one to three cents per share the fee will be either deducted from dividends or passed on to the investor s brokerage firm adrs and taxesholders of adrs realize any dividends and capital gains in u s dollars however dividend payments are net of currency conversion expenses and foreign taxes usually the bank automatically withholds the necessary amount to cover expenses and foreign taxes 2since this is the practice american investors would need to seek a credit from the irs or a refund from the foreign government s taxing authority to avoid double taxation on any capital gains realized 3if you re interested in learning more about adrs there are many investing courses available that can get you started advantages and disadvantages of american depositary receiptsas with any investment there are distinct advantages and disadvantages of investing in adrs here are some of them adrs are just like stocks this means they trade on a stock exchange or over the counter making them fairly easy to access and trade investors can also easily track their performance by reviewing market data purchasing adrs is easy because they re available directly through american brokers this eliminates the need to go through foreign channels to buy stock in a company you may be interested in since they re available domestically shares are denominated in u s dollars but that doesn t mean you avoid any direct risks associated with fluctuations in currency rates it is a common misconception that since the adr is traded in u s dollars in the united states there is no exchange rate risk adrs have currency risk because of the way they are structured the global bank that creates the adrs establishes a conversion rate meaning that an adr share is worth a certain number of local shares to preserve this conversion rate over time movements in the exchange rate of the home country vs the adr price must be reflected in u s dollars one of the most obvious benefits of investing in adrs is that they provide investors with a way to diversify their portfolios investing in international securities allows you to open your investment portfolio up to greater rewards along with the risks the main problems associated with adrs are that they may involve double taxation locally and abroad and how many companies are listed unlike domestic companies there are a limited number of foreign entities whose adrs are listed for the public to trade some adrs may not comply with sec regulations these are called unsponsored adrs which have no direct involvement by the company in fact some companies may not even provide permission to list their shares this way although investors can avoid any direct risks that come with currency exchange they may incur currency conversion fees when investing in adrs these fees are established to directly link the foreign security and the one traded on the domestic market easy to track and tradeavailable through u s brokersdenominated in dollarsoffer portfolio diversification | |
could face double taxation | limited selection of companiesunsponsored adrs may not be sec compliantinvestors may incur currency conversion feeshistory of american depositary receiptsbefore american depositary receipts were introduced in the 1920s american investors who wanted shares of a non u s listed company could only do so on international exchanges an unrealistic option for the average person back then adrs were developed because of the complexities of buying shares in foreign countries and the difficulties associated with trading at different prices and currency values j p morgan s jpm predecessor guaranty trust pioneered the adr concept in 1927 it launched the first adr enabling u s investors to buy shares of famous british retailer selfridges and helping the luxury depart store to tap into global markets the adr was listed on the new york curb exchange 4a few years later in 1931 the bank introduced the first sponsored adr for the british music company electrical musical industries the eventual home of the beatles today j p morgan and bny mellon another u s bank continue to be actively involved in the adr markets 5real world example of adrsbetween 1988 and 2018 german car manufacturer volkswagen ag traded otc in the u s as a sponsored adr under the ticker vlkay in august 2018 volkswagen terminated its adr program 6 one day after the termination j p morgan established an unsponsored adr for volkswagen trading under the ticker vwagy 7investors who held the old vlkay adrs had the option of cashing out exchanging the adrs for actual shares of volkswagen stock trading on german exchanges or exchanging them for the new vwagy adrs if i own an adr is it the same as owning shares in the company adrs are u s dollar denominated certificates that trade on american stock exchanges and track the price of a foreign company s domestic shares adrs represent the prices of those shares but do not grant you ownership rights as common stock typically does | |
why do foreign companies list adrs | foreign companies often seek to have their shares traded on u s exchanges through adrs to obtain greater visibility in the international market access to a larger pool of investors and coverage by more equity analysts companies that issue adrs may also find it easier to raise money in international markets when their adrs are listed in u s markets | |
what is a sponsored vs an unsponsored adr | in a sponsored adr the depositary bank works with the foreign company and their custodian bank in their home country to register and issue the adrs an unsponsored adr is issued by a depositary bank without the involvement participation or even the consent of the foreign company it represents ownership of unsponsored adrs are usually issued by broker dealers that own common stock in a foreign company and trade over the counter sponsored adrs are more commonly found on exchanges | |
what is the difference between an adr and a gdr | adrs provide a listing to foreign shares in one market u s global depositary receipts gdrs on the other hand give access to two or more markets most frequently the u s and euro markets with one fungible security gdrs are most commonly used when the issuer raises capital in the local market as well as in the international and u s markets this can be done either through private placement or public offerings | |
is an adr the same as an american depositary share ads | american depositary shares adss are the actual underlying shares that the adr represents in other words the ads is the actual share available for trading while the adr represents the entire bundle of adss issued the bottom lineamerican depositary receipts or adrs allow americans to invest in foreign companies although these companies do not ordinarily trade on the u s stock market an adr enables investors to buy these stocks as easily as they would invest in any domestic stock the arrangement also benefits foreign firms allowing them to raise capital from the u s market | |
for investors seeking exposure to foreign companies without the complexity of buying shares on international exchanges american depositary shares ads are a convenient solution these securities issued by u s banks and representing a specific number of shares in a foreign company trade on american stock exchanges like any domestic stock | the acronym ads is often used interchangeably with the one for american depositary receipts adrs adrs refer to the physical certificates issued by the depositary bank while adss represent the individual shares of the foreign company held by the depositary bank 12understanding american depositary sharesan adr is a negotiable certificate issued by a u s bank under an agreement with a foreign company it s evidence of ownership of adss the same way a stock certificate means owning equity shares 2adss are meant to facilitate share trading depending on how much the foreign company is willing to follow u s regulations they can trade over the counter otc or on a major exchange such as the new york stock exchange or the nasdaq listing on a major exchange generally requires reporting at the same level as domestic companies and adherence to generally accepted accounting principles gaap | |
what is an american depositary receipt | an american depositary receipt adr is a financial instrument non us companies use to offer their shares to american investors and raise capital in the u s market adrs allow american investors to invest in foreign companies without the complexities of dealing with foreign stock exchanges different currencies and varying trade practices 1adrs are also issued by u s depositary banks and represent a specified number of shares of a foreign company s stock although originally valued in the company s local currency dividends are paid to adr holders in u s dollars the depositary bank converts dividends into u s dollars simplifying the process for american investors there are two main types of adrs first are sponsored adrs which are officially supported by the foreign company involve a formal agreement between the company and the depositary bank and are typically listed on major u s exchanges 2 the second are unsponsored adrs that are set up without the company s direct involvement and usually trade otc 1sponsored adrs are regulated by the u s securities and exchange commission sec which can include filing financial statements using u s gaap or a reconciliation with them the benefits of adssforeign companies that offer shares on u s exchanges gain the advantage of a wider investor base which can also lower the costs of raising capital for u s investors adss offer the chance to invest in foreign companies without dealing with currency conversions and other cross border administrative hurdles the downsides of adssholding adss involves some currency risk fluctuations in the exchange rate between the u s dollar and a foreign currency can affect the price of shares and income payments which must be converted to u s dollars the tax treatment of dividends from adss is also different most countries withhold a certain amount of taxes on the dividends issued for adrs for example chile and switzerland withhold 35 while france can withhold as much as 75 of the dividend tax for noncooperative countries within the eu the withholding tax is in addition to the dividend tax already levied by u s authorities adr investors can avoid the dividend tax by filling out form 1116 for the foreign tax credit 3examples of adssa single ads often represents more than one share of common stock adss can also gap up or down outside u s trading hours when trading occurs in the company s home country and u s markets are closed for example taiwan semiconductor manufacturing company limited tsm has adss in the u s there have been times when it has gapped as illustrated in the candlestick chart in 2024 the gaps higher are represented by the green boxes while the gaps lower are represented by the red boxes tradingviewdifferences between an ads and adractual shares of the foreign companyadss are represented by adrseases u s investor access to foreign equitiesa negotiable certificateeases ads transactionssimplifies the investment process in foreign securitiesadss and adrs are closely linked financial instruments that ease the trading of shares of foreign companies on u s exchanges here are the key differences | |
what are f shares | f shares refer to shares of a foreign company that are traded on u s stock exchanges but not through adrs instead these shares are directly listed and denoted with an f at the end of their ticker symbol to indicate their foreign status 3 | |
is arbitrage trading done with adss | arbitrage in trading an ads occurs when there are market inefficiencies currency exchange rates and liquidity 5 however executing arbitrage strategies involves significant challenges such as transaction costs market risk and the operational complexities of intra market trading | |
what are depositary banks | depositary banks play a crucial role in the issuance and management of adss adrs and other related securities these banks act as a bridge between u s investors and foreign companies allowing for easier access to foreign investments major depositary banks include jpmorgan chase co jpm citigroup c bank of new york mellon bk and deutsche bank db the bottom lineadss are u s dollar denominated equity shares of a foreign based company that can be bought and sold on an american stock exchange a u s depositary bank issues them and represent a specific number of shares of the foreign company the depositary bank sets the ratio of adss to the underlying shares in the foreign company and allows access to foreign company stocks without the need to trade on exchanges overseas meanwhile an adr is a certificate issued by a u s depositary bank and represents a specific number of adss | |
what is the american dream | the term american dream refers to the belief that anyone regardless of where they were born or what class they were born into can attain their own version of success in a society in which upward mobility is possible for everyone the american dream is believed to be achieved through sacrifice risk taking and hard work rather than by chance understanding the american dreamthe term was coined by writer and historian james truslow adams in his best selling 1931 book epic of america he described it as that dream of a land in which life should be better and richer and fuller for everyone with opportunity for each according to ability or achievement adams went on to explain it is a difficult dream for the european upper classes to interpret adequately and too many of us ourselves have grown weary and mistrustful of it it is not a dream of motorcars and high wages merely but a dream of social order in which each man and woman shall be able to attain to the fullest stature of which they are innately capable and be recognized by others for what they are regardless of the fortuitous circumstances of birth or position 1the idea of the american dream has much deeper roots its tenets can be found in the declaration of independence which states we hold these truths to be self evident that all men are created equal that they are endowed by their creator with certain unalienable rights that among these are life liberty and the pursuit of happiness 2in a society based on these principles an individual can live life to its fullest as they define it america also grew mostly as a nation of immigrants who created a nation where becoming an american and passing that citizenship to your children didn t require being the child of an american 3the american dream now costs 3 455 305 that s the estimated lifetime cost of common milestones including marriage two children homes health care cars and education advantages and disadvantages of the american dreamachieving the american dream requires political and economic freedom as well as rules of law and private property rights without them individuals cannot make the choices that will permit them to attain success nor can they have confidence that their achievements will not be taken away from them through arbitrary force the american dream promises freedom and equality it offers the freedom to make both the large and small decisions that affect one s life the freedom to aspire to bigger and better things and the possibility of achieving them the freedom to accumulate wealth the opportunity to lead a dignified life and the freedom to live in accordance with one s values even if those values are not widely held or accepted the books of post civil war writer horatio alger in which impoverished but hardworking teenage boys rise to success through pluck determination and good fortune came to personify realizing the dream the american dream also offers the promise that the circumstances of someone s birth including whether they were born american citizens or immigrants do not completely determine their future terming the concept a dream also carries with it the notion that these ideals aren t necessarily what has played out in the lives of many actual americans and those who hope to become americans the criticism that reality falls short of the american dream is at least as old as the idea itself the spread of settlers into native american lands slavery the original limitation of the right to vote to white male landowners and a long list of other injustices and challenges have undermined the realization of the dream for many who live in the united states as income inequality has increased substantially since the 1970s the american dream has begun to seem less attainable for those who aren t already affluent or born into affluence according to u s census family income data real family income began to grow much more among the top income group than among other segments of american society 4these realities however do not diminish the luster of the american dream as an ideal and a beacon to all nations the american dream promises freedom and equality the ideals of the american dream are motivating including the freedom to be in charge of one s own life the reality of the american dream often falls short of the idea itself as income inequality has increased the american dream has seemed less attainable | |
how to measure the american dream | today homeownership is frequently cited as an example of attaining the american dream it is a symbol of financial success and independence and it means the ability to control one s own dwelling place instead of being subject to the whims of a landlord owning a business and being one s own boss also represents the american dream fulfillment entrepreneurship has always been important to the u s economy too from 1995 to 2021 small businesses created 17 3 million net jobs alone 5in addition access to education and healthcare have been cited as elements of the dream special considerationsin her book spreading the american dream american economic and cultural expansion 1890 1945 sociologist emily s rosenberg identifies five components of the american dream that have shown up in countries around the world these include the following the american dream was aided by a number of factors that gave the united states a competitive advantage over other countries for starters it is relatively isolated geographically compared to many other countries and enjoys a temperate climate it has a culturally diverse population that businesses use to foster innovation in a global landscape abundant natural resources including oil arable land and long coastlines generate food and income for the country and its residents | |
what is the original american dream | the phrase american dream was often used by progressive era reformers of the 1900s rather than exalting the pursuit of wealth they sought to tame monopoly capitalism and protect workers and communities from robber barons 7 this concept was popularized by writer and historian james truslow adams in his best selling 1931 book epic of america he described it as that dream of a land in which life should be better and richer and fuller for everyone with opportunity for each according to ability or achievement 1 | |
what are examples of the american dream | examples of the american dream include owning your own house starting a family and having a stable job or owning your own business | |
is the american dream still achievable | it s widely debated if the american dream is still achievable and what that achievement even entails indeed today many people wonder if they can keep up with rising housing costs and interest payments on loans needed to purchase things like homes and cars moreover american s need to save for their own retirement and pay large out of pocket costs for healthcare and higher education which can leave families saddled with high interest debt that is hard to crawl back from | |
how has the american dream changed | over time the american dream has shifted from an ethos of equality and solidarity to one of individualistic competition to succeed materialistically fueled by consumption in the 1990s and early 2000s mortgage company fannie mae began promulgating the notion that buying a home was a cornerstone of the american dream and use the term prominently in ads selling home loans 8 this ideology led to the housing boom and ultimate bubble that popped ultimately leading to the 2008 09 financial crisis the bottom linethe concept of the american dream is still one of the most uniquely american ideals the ultimate idea that any individual should be able to pursue their dreams and build the life they want if they put in the hard work this motivating drive influences the economy with entrepreneurship and individual ambition infusing a romantic notion to anyone trying to be successful in the united states though the definition of the american dream has changed to mean different things to different generations it s undoubtedly part of the american ethos | |
what is an american express card | an american express card also known as an amex card is an electronic payment card branded by the publicly traded financial services company american express axp the company issues and processes prepaid charge and credit cards american express cards are available to individuals small businesses and corporate consumers across the united states and around the world 12understanding american express cardsamerican express cards are issued by american express and processed on the american express network american express is one of only a few financial service companies in the industry that has the capability to both issue and process electronic payment cards 3american express is a publicly traded company in the financial services industry it offers both credit lending and network processing services giving it a broad range of competitors in the industry as with traditional lenders it has the capability to issue credit products which it provides in the form of charge cards and credit cards american express has its own processing network that competes with mastercard ma and visa v its most comparable competitor is discover financial services dfs which is also a publicly traded financial service company offering both credit lending and a processing service network 3 with multiproduct capabilities american express generates revenue from both interest earning products and network processing transaction services the term black card refers to the american express centurion card which is offered by invitation only 4american express feesamerican express generates a significant portion of its revenue from transaction processing many merchants accept american express cards and are willing to pay the transaction fees associated with processing because of the advantages that come with offering american express as a payment option to customers 5in an american express transaction the merchant s acquiring bank communicates with american express as both the processor and the issuing bank in the transaction process merchant acquiring banks must work with the american express processing network to transmit communications in american express transactions american express is also the issuer that authenticates and approves the transaction 6merchants pay a small fee to american express for its processing network services which are part of the comprehensive fees involved with a single transaction as both a processor and high quality lender american express has built a strong reputation in the financial services industry types of american express cardsas noted above american express credit cards and prepaid debit cards are offered to a variety of both retail and commercial customers it is also an industry leading provider of charge cards which offer month to month credit with card balances that must be paid off each month american express charge and credit cards follow standard underwriting procedures the company seeks good to high credit quality borrowers which means a credit score of at least 670 and generally is not a subprime lender 7american express credit and charge cards come with a variety of benefits in the form of rewards points and travel perks which depend in part on the annual fee charged 8 american express cards may offer cash back on certain purchases though they aren t among the best cash back cards currently available 9 american express also offers numerous branded prepaid debit cards which can be used as gift cards or special purpose reloadable payment cards annual fees for american express cards tend to run high 95 for the blue cash preferred card 99 for the delta skymiles gold american express card 150 for the green card 250 for the gold card and 550 for the platinum card 10 that said the green gold and platinum cards have no predetermined spending limits 11 american express does offer at least six cards with no annual fee 12 customer service for all amex cards is highly rated with the company coming in no 1 on j d power s 2020 u s credit card satisfaction study 13american express issues many of its cards directly to consumers but it also has partnerships with other financial institutions in the u s for example wells fargo issued an american express card new applications were paused in april 2021 although this doesn t affect current cardholders and in mexico banco santander offers american express cards 1415 american express also has partnerships with other companies to encourage consumers to apply for its credit cards two examples are its co branded cards with delta air lines which allow consumers to earn frequent flier miles redeemable on delta and its hilton hotels co branded cards 16pros and cons of an american express cardgreen gold and platinum amex cards don t have any predetermined spending limits amex is known for the high quality of its customer service ranking number one in j d power s 2020 u s credit card satisfaction study amex cards offer a host of rewards perks and cash back on purchases you must pay the balance on amex charge cards in full each month which prevents you from running up high interest charges due to higher transaction fees than other cards some merchants won t accept amex cards you can t get an amex card without at least a good 670 or higher credit score annual fees for amex cards can be high you must pay the balance on amex charge cards in full each month so you can t use them to borrow money | |
what is the american opportunity tax credit aotc | the american opportunity tax credit aotc is a tax credit for qualified education expenses associated with the first four years of a student s postsecondary education the maximum annual credit is 2 500 per eligible student the student someone claiming the student as a dependent or a spouse making postsecondary education payments can claim the aotc on their tax return understanding the american opportunity tax creditwith the aotc a household with a qualifying student can receive a maximum 2 500 tax credit per year for the first four years of higher education 1the aotc helps with educational costs such as tuition and other expenses related to a student s coursework eligible students or their parents can claim 100 of the first 2 000 spent on school expenses and 25 of the next 2 000 this comes out to a maximum credit of 2 500 100 2 000 25 2 000 1the american opportunity tax credit is partially refundable which means that it could provide a refund even if your tax liability is 0 1in general tax credits are refundable nonrefundable or partially refundable up to 1 000 40 of the aotc is refundable making it a partially refundable tax credit so if the credit brings your tax liability to 0 you can receive 40 of your eligible credit up to 1 000 as a refund 1aotc eligibility requirementslike other tax credits you must meet specific eligibility requirements to claim the aotc to claim the aotc on your tax return you must meet all three of these requirements 2additionally you must receive internal revenue service irs form 1098 t from an eligible school to claim the credit 2 here s an example of the form a student is eligible for the aotc only if they meet certain requirements specifically the student must 1academic periods can be quarters trimesters semesters or summer school sessions if the school doesn t have academic terms you can treat the payment period as an academic period 1qualified education expenses include tuition and some related costs required to attend an eligible educational institution an eligible educational institution is any accredited public nonprofit or private college university vocational school or other postsecondary educational institution 3 related expenses include 4insurance medical expenses including student health fees room and board transportation and living expenses do not count as qualified education expenses 4you can pay for qualified education expenses with student loans however you can t claim the credit if you paid for expenses with scholarships grants employer provided assistance or funds from a 529 savings plan 4there is an exception to that if some amount of qualified expenses remains after using tax free educational assistance to pay for them 5those who wish to claim the full credit must have modified adjusted gross income magi of 80 000 or less 160 000 if married filing jointly the credit begins to phase out above these limits and disappears entirely if your magi is above 90 000 180 000 for married filing jointly 1aotc vs lifetime learning creditthe aotc and the lifetime learning credit llc are popular tax breaks that people with educational expenses can claim on their annual tax returns while similar the llc and the aotc differ in several ways 6with the llc you can claim up to 20 of the first 10 000 of qualifying expenses 2 000 the llc is not limited to students pursuing a degree or studying at least part time instead it covers a broader group of students including part time full time undergraduate graduate and courses for skill development finally the llc is nonrefundable meaning that once your tax bill hits zero you won t receive a refund on any credit balance 67if you re eligible for both the aotc and the llc be sure to assess your individual situation to determine which tax credit provides the greater benefit the partial refundability of the aotc can be an important factor of course some taxpayers may only qualify for the llc making the decision easy you can claim the aotc and the llc as well as the deduction for tuition and fees on the same tax return but not for the same student or the same qualified expenses 5other tax breaks for educationfederal and state governments support higher education expenses through various tax credits tax deductions and tax advantaged savings plans each of these programs can help lower your income tax liability and make education more affordable beyond the aotc and the llc be sure to claim any education related tax deductions for which you may be eligible including those for 8savings plans can also help with higher education expenses these are tax advantaged accounts that allow you to save and pay for education expenses two popular programs include 8thanks to the tax cuts and jobs act you can now use up to 10 000 of 529 plan distributions to pay for k 12 costs per beneficiary each year 9 previously you could use the funds only for college and other postsecondary education expenses aotc examplerosa is a full time undergraduate college student at a four year institution she also works for a law firm her parents have a substantial 529 savings account in place but it doesn t cover all of rosa s expenses rosa also has a student loan with deferred payments and interest until after graduation rosa and her family pay her tuition with student loans and use funds from a 529 plan to cover room and board rosa receives her annual 1098 t statement and since she is working she plans to take the aotc herself she is eligible for both the aotc and the llc but she chooses the aotc because it provides a larger credit and is partially refundable 4rosa paid her tuition with a student loan which is allowable for the aotc the aotc helps alleviate any tax that she owes and she also gets a partial refund rosa doesn t owe anything on her loans until after she graduates the money distributed from the 529 was tax free because it was used for room and board which is a qualified 529 expense 4 | |
how do i claim the american opportunity tax credit | to claim the aotc complete form 8863 and submit it with your form 1040 or 1040 sr when filing your annual income tax return enter the nonrefundable part of the credit on schedule 3 of your 1040 or 1040 sr line 3 the refundable portion of the credit goes on line 29 of the 1040 or 1040 sr 4can i claim the aotc and the lifetime learning credit yes you can claim the aotc and the llc on the same tax return however you can t claim both credits for the same student or the same expenses during a single tax year 5can i claim the aotc if i get a grant yes however you need to subtract the grant amount from your qualified education expenses before claiming the tax credit so if you have 5 000 in costs and a 4 000 grant you would be able to claim 1 000 of qualified education expenses with the aotc for the purposes of the aotc grants include 5the bottom linethe aotc is a partially refundable tax credit that can offset certain qualified education expenses of postsecondary students the student or a spouse or someone claiming the student as a dependent can claim up to 2 500 if the credit takes your bill down to zero you can receive a refund of up to 1 000 40 1 | |
what is an american option | an american option aka an american style option is a version of an options contract that allows holders to exercise the option rights at any time before and including the day of expiration it contrasts with another type of option called the european option that only allows execution on the day of expiration an american style option allows investors to capture profit as soon as the stock price moves favorably and to take advantage of dividend announcements as well | |
how american options work | american options outline the timeframe when the option holder can exercise their option contract rights these rights allow the holder to buy or sell depending on if the option is a call or put the underlying asset at the set strike price on or before the predetermined expiration date since investors have the freedom to exercise their options at any point during the life of the contract american style options are more valuable than the limited european options however the ability to exercise early carries an added premium or cost the last day to exercise a weekly american option is normally on the friday of the week in which the option contract expires conversely the last day to exercise a monthly american option is normally the third friday of the month 1the majority of exchange traded options on single stocks are american while options on indexes tend to be european style the names american and european have nothing to do with the geographic location of the option but only apply to the style of rights execution american call and put optionsa long call option gives the holder the right to demand delivery of the underlying security or stock on any day within the contract period this feature includes any day leading up to and the day of expiration as with all options the buyer does not have an obligation to receive the shares and is not required to exercise their right the strike price remains the same specified value throughout the contract if an investor purchased a call option for a company in march with an expiration date at the end of december of the same year they would have the right to exercise the call option at any time up until its expiration date american put options also allow the execution at any point up to and including the expiration date this ability gives the buyer the freedom to demand the seller takes delivery of the underlying asset whenever the price falls below the specified strike price one reason for the early exercise has to do with the cost of carry or the opportunity cost associated with not investing the gains from the put option when a put is exercised investors are paid the strike price immediately as a result the proceeds can be invested in another security to earn interest however the drawback to exercising puts is that the investor would miss out on any dividends since exercising would sell the shares also the option itself might continue to increase in value if held to expiry and exercising early might lead to missing out on any further gains | |
when to exercise early | in many instances holders of american style options do not utilize the early exercise provision since it s usually more cost effective to either hold the contract until expiration or exit the position by selling the option contract outright in other words as a stock price rises the value of a call option increases as does its premium traders can sell an option back to the options market if the current premium is higher than the initial premium paid at the onset the trader would earn the net difference between the two premiums minus any fees or commissions from the broker however there are times when options are typically exercised early deep in the money call options where the asset s price is well above the option s strike price will usually be exercised early puts can also be deep in the money when the price is significantly below the strike price in most cases deep prices are those that are more than 10 in the money with lower priced equities deep in the money might be characterized as a 5 spread between the strike price and market price early execution can also happen leading up to the date a stock goes ex dividend the cutoff date by which shareholders must own the stock to receive the next scheduled dividend payment option holders do not receive dividend payments so many investors will exercise their options before the ex dividend date to capture the gains from a profitable position and get paid the dividend advantages and disadvantages of american optionsamerican options are helpful since investors don t have to wait to exercise the option when the asset s price rises above the strike price however american style options carry a premium an upfront cost that investors pay and which must be factored into the overall profitability of the trade allows exercise at any timeallows exercise before an ex dividend dateallows profits to be put back to workcharges a higher premiumnot available for index option contractsmay miss out on additional option appreciationexamples of an american optionsay an investor purchased an american style call option for apple inc aapl in march with an expiration date at the end of december in the same year the premium is 5 per option contract one contract is 100 shares 5 x 100 500 and the strike price on the option is 100 following the purchase the stock price rose to 150 per share the investor exercises the call option on apple before expiration buying 100 shares of apple for 100 per share in other words the investor would be long 100 shares of apple at the 100 strike price the investor immediately sells the shares for the current market price of 150 and pockets the 50 per share profit the investor earned 5 000 in total minus the premium of 500 for buying the option and any broker commission let s say an investor believes shares of meta inc meta formerly facebook will decline in the upcoming months the investor purchases an american style july put option in january which expires in september of the same year the option premium is 3 per contract 100 x 3 300 and the strike price is 150 meta s stock price falls to 90 per share and the investor exercises the put option and is short 100 shares of meta at the 150 strike price the transaction effectively has the investor buying 100 shares of meta at the current 90 price and immediately selling those shares at the 150 strike price however in practice the net difference is settled and the investor earns a 60 profit on the option contract which equates to 6 000 minus the premium of 300 and any broker commissions investopedia does not provide tax investment or financial services and advice the information is presented without consideration of the investment objectives risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors investing involves risk including the possible loss of principal | |
what is the american stock exchange amex | the american stock exchange amex was once the third largest stock exchange in the united states as measured by trading volume the exchange at its height handled about 10 of all securities traded in the u s today the amex is known as the nyse american in 2008 nyse euronext acquired the amex in the subsequent years it also became known as nyse amex equities and nyse mkt 1 understanding the american stock exchange amex the amex developed a reputation over time as an exchange that introduced and traded new products and asset classes for example it launched its options market in 1975 options are a type of derivative security they are contracts that grant the holder the right to buy or sell an asset at a set price on or before a certain date without the obligation to do so when the amex launched its options market it also distributed educational materials to help educate investors as to the potential benefits and risks 2 the amex used to be a larger competitor of the new york stock exchange nyse but over time the nasdaq filled that role in 1993 the amex introduced the first exchange traded fund etf the etf now a popular investment is a type of security that tracks an index or a basket of assets they are much like mutual funds but differ in that they trade like stocks on an exchange 2 over time the amex gained the reputation of listing companies that could not meet the strict requirements of the nyse today a good portion of trading on the nyse american is in small cap stocks it operates as a fully electronic exchange history of the american stock exchange amex the amex dates back to the late 18th century when the american trading market was still developing at that time without a formalized exchange stockbrokers would meet in coffeehouses and on the street to trade securities for this reason the amex became known at one time as the new york curb exchange 3 the traders who originally met in the streets of new york became known as curbstone brokers they specialized in trading stocks of emerging companies at the time many of these emerging businesses were in industries such as railroads oil and textiles while those industries were still getting off the ground 3 in the 19th century this type of curbside trading was informal and quite disorganized in 1908 the new york curb market agency was established in order to bring rules and regulations to trading practices 3 in 1929 the new york curb market became the new york curb exchange it had a formalized trading floor and a set of rules and regulations in the 1950s more and more emerging businesses began trading their stocks on the new york curb exchange the value of companies listed on the exchange almost doubled between 1950 and 1960 going from 12 billion to 23 billion during that time the new york curb exchange changed its name to the american stock exchange in 1953 2 special considerationsover the years the nyse american has become an attractive listing place for younger entrepreneurial companies some of whom are in the early stages of their growth and certainly not as well known as blue chip companies compared to the nyse and nasdaq the nyse american trades at much smaller volumes because of these factors there could be concerns that investors would not be able to quickly buy and sell some securities in the market to ensure market liquidity which is the ease at which a security can be converted to cash without impacting its market price the nyse american offers electronic designated market makers market makers are individuals or firms that are available to buy and sell a particular security as needed throughout the trading session these designated market makers have quoting obligations for specific nyse american listed companies in return for making a market for a security market makers earn money through the bid ask spread and from fees and commissions so despite the fact that the nyse american is a smaller volume exchange specializing in listing smaller companies its use of market makers enables it to maintain liquidity and an orderly market | |
what is the americans with disabilities act ada | the americans with disabilities act ada of 1990 is a law that provides comprehensive civil rights protections to individuals with disabilities the ada made it illegal to discriminate against people with disabilities in terms of employment opportunities access to transportation public accommodations communications and government activities 1the ada prohibits private employers state and local governments employment agencies and labor unions from discriminating against those who have disabilities under the ada employers are also required to make reasonable accommodations for an employee with a disability to perform their job function 2understanding the americans with disabilities act ada to be covered by the ada a person must have a physical or mental impairment that substantially limits one or more major life activities four major sections comprise the primary protections introduced by the ada 2title i of the law prohibits discrimination against qualified individuals with disabilities during job application procedures hiring firing the pursuit of career advancement compensation job training and other aspects of employment it holds authority over employers who have 15 or more employees 2title ii applies to state and local government entities this part of the law further extends the protection from discrimination to qualified individuals with disabilities it requires that these individuals have reasonable access to services programs and activities provided by the government 2the americans with disabilities act amendments act of 2008 allowed for a broader legal definition of disability it made it easier for people seeking protection under the ada to establish that they have a disability before the amendment people with disabilities including cancer diabetes epilepsy attention deficit hyperactivity disorder adhd and learning disabilities could be excluded from ada coverage title iii prohibits discrimination against people with disabilities regarding access to activities at public venues this includes businesses that are generally open to the public such as restaurants schools daycare facilities movie theaters recreation facilities and doctors offices 2the law also requires newly constructed rebuilt or refurbished places of public accommodation to comply with ada standards in addition title iii applies to commercial facilities that include privately owned nonresidential facilities such as factories warehouses or office buildings 2title iv oversees telephone and television access for individuals with hearing and speech disabilities common carriers such as telephone companies are required to establish interstate and intrastate telecommunications relay services trs 24 hours a day seven days a week 2different government agencies play a role in enforcing the ada the equal employment opportunity commission eeoc enforces title i the department of labor enforces state and local government services under title ii and public accommodations under title iii title iv is enforced by the federal communications commission fcc 3 | |
how the americans with disabilities act increased accessibility | the ada established standards for accessible design for public accommodations that include creating automatic doorways ramps and elevators to accommodate wheelchairs water fountains must be made available at heights that individuals with disabilities can reach 2some examples of accommodations in the workplace include supplying a hearing impaired applicant with a sign language interpreter during a job interview modifying a work schedule to meet the needs of a person who needs treatment or restructuring an existing facility to make it readily accessible to people with disabilities websites are required by law to be accessible to people with disabilities and must comply with ada accessibility standards 4an employer is not required by the ada to make reasonable accommodations if doing so presents an undue hardship for the business and requires significant expenses compared with the size of the company 2title iv of the ada requires telephone companies to provide telephone relay services or similar devices for the hearing and speech impaired 2 | |
what does the americans with disabilities act do | the americans with disabilities act seeks to prevent discrimination against people with disabilities in the areas of employment communication transportation state and government programs and public accommodation it seeks to ensure people with disabilities are able to participate equally in everyday life | |
is anxiety covered by ada | yes anxiety disorders are covered by the ada and are considered disabilities if you suffer from anxiety disorders you are not allowed to be discriminated against in the workplace or any other area of your life | |
what are the types of ada | the americans with disabilities act ada is broken down into four main sections title i which covers employment title ii which covers public entities and transportation title iii which covers public accommodations and public facilities and title iv which covers telecommunications the bottom linethe americans with disabilities act was passed with the goal of ensuring americans with disabilities are guaranteed equal opportunities to participate in mainstream life this includes laws against the discrimination of people with disabilities in regard to employment transportation communication public accommodations and government activities the act has done much to further the lives of individuals with disabilities | |
what is an amortizable bond premium | the amortizable bond premium is a tax term that refers to the excess price paid for a bond over and above its face value depending on the type of bond the premium can be tax deductible and amortized over the life of the bond on a pro rata basis understanding an amortizable bond premiuma bond premium occurs when the price of the bond has increased in the secondary market due to a drop in market interest rates a bond sold at a premium to par has a market price that is above the face value amount the difference between the bond s current price or carrying value and the bond s face value is the premium of the bond for example a bond that has a face value of 1 000 but is sold for 1 050 has a 50 premium over time as the bond premium approaches maturity the value of the bond falls until it is at par on the maturity date the gradual decrease in the value of the bond is called amortization for a bond investor the premium paid for a bond represents part of the cost basis of the bond which is important for tax purposes if the bond pays taxable interest the bondholder can choose to amortize the premium that is use a part of the premium to reduce the amount of interest income included for taxes 1those who invest in taxable premium bonds typically benefit from amortizing the premium because the amount amortized can be used to offset the interest income from the bond this in turn will reduce the amount of taxable income the bond generates and thus any income tax due on it as well the cost basis of the taxable bond is reduced by the amount of premium amortized each year 1in a case where the bond pays tax exempt interest the bond investor must amortize the bond premium although this amortized amount is not deductible in determining taxable income the taxpayer must reduce their basis in the bond by the amortization for the year 1 the irs requires that the constant yield method be used to amortize a bond premium every year 2amortizing bond premium with the constant yield methodthe constant yield method is used to determine the bond premium amortization for each accrual period 2 it amortizes a bond premium by multiplying the adjusted basis by the yield at issuance and then subtracting the coupon interest or in formula form the first step in calculating the premium amortization is to determine the yield to maturity ytm which is the discount rate that equates the present value of all remaining payments to be made on the bond to the basis in the bond 2for example consider an investor that purchased a bond for 10 150 the bond has a five year maturity date and a par value of 10 000 it pays a 5 coupon rate semi annually and has a yield to maturity of 3 5 let s calculate the amortization for the first period and second period since this bond makes semi annual payments the first period is the first six months after which the first coupon payment is made the second period is the next six months after which the investor receives the second coupon payment and so on since we re assuming a six month accrual period the yield and coupon rate will be divided by 2 following our example the yield used to amortize the bond premium is 3 5 2 1 75 and the coupon payment per period is 5 2 x 10 000 250 the amortization for period 1 is as follows the bond s basis for the second period is the purchase price plus the accrual in the first period that is 10 150 72 38 10 077 62 for the remaining eight periods there are 10 accrual or payment periods for a semi annual bond with a maturity of five years use the same structure presented above to calculate the amortizable bond premium intrinsically a bond purchased at a premium has a negative accrual in other words the basis amortizes | |
what is the amortization of intangibles | amortization of intangibles also simply known as amortization is the process of expensing the cost of an intangible asset over the projected life of the asset for tax or accounting purposes intangible assets such as patents and trademarks are amortized into an expense account called amortization tangible assets are instead written off through depreciation also the amortization process for corporate accounting purposes may differ from the amount of amortization used for tax purposes understanding the amortization of intangiblesfor tax purposes the cost basis of an intangible asset is amortized over a specific number of years regardless of the actual useful life of the asset as most intangibles don t have a set useful life the internal revenue service irs allows intangibles to be amortized over a 15 year period if it s one of the ones included in section 197 1intangible assets are nonphysical assets that can be assigned an economic value intellectual property ip is considered to be an intangible asset and is a broad term that encompasses most intangible assets most ip is covered under section 197 examples of these section 197 intangible assets include patents goodwill trademarks and trade and franchise names 2not all ip is amortized over the 15 year period set by the irs however there are certain exclusions such as software acquired in a transaction that is readily available for purchase by the general public subject to a nonexclusive license and has not been substantially modified in those cases and select others the intangibles are amortized under section 167 34per generally accepted accounting principles gaap businesses amortize intangibles over time to help tie the cost of an asset to the revenues it generates in the same accounting period special considerations | |
when a parent company purchases a subsidiary company and pays more than the fair market value fmv of the subsidiary s net assets the amount over fair market value is posted to goodwill an intangible asset ip is initially posted as an asset on the firm s balance sheet when it is purchased | ip can also be internally generated by a company s own research and development r d efforts for instance a company may win a patent for a newly developed process which has some value that value in turn increases the value of the company and so must be recorded appropriately in either case the process of amortization allows the company to write off annually a part of the value of that intangible asset according to a defined schedule amortization vs depreciationassets are used by businesses to generate revenue and produce income over a period of time the costs related to the assets are moved into an expense account as the useful life of the asset dwindles by expensing the cost of the asset over a period of time the company is complying with gaap which requires the matching of revenue with the expense incurred to generate the revenue tangible assets are expensed using depreciation and intangible assets are expensed through amortization depreciation generally includes a salvage value for the physical asset the value that the asset can be sold for at the end of its useful life amortization doesn t take into account a salvage value intangible amortization is reported to the irs using form 4562 51types of amortizationfor accounting financial statement purposes a company can choose from six amortization methods straight line declining balance annuity bullet balloon and negative amortization there are only four depreciation methods that can be used for accounting purposes straight line declining balance sum of the years digits and units of production for tax purposes there are two options for amortization of intangibles that the irs allows these are straight line and the income forecast method the income forecast method can be used instead of the straight line method if the asset is motion picture films videotapes sound recordings copyrights books or patents for depreciation of physical assets the irs only allows the modified accelerated cost recovery system macrs 6example of amortizationassume for example that a construction company buys a 32 000 truck for contractor work and that the truck has a useful life of eight years the annual depreciation expense on a straight line basis is the 32 000 cost basis minus the expected salvage value in this case 4 000 divided by eight years the annual deprecation for the truck would be 3 500 per year or 32 000 4 000 8 on the other hand assume that a corporation pays 300 000 for a patent that allows the firm exclusive rights over the intellectual property for 30 years the firm s accounting department posts a 10 000 amortization expense each year for 30 years both the truck and the patent are used to generate revenue and profit over a particular number of years since the truck is a physical asset depreciation is used and since the rights are intangible amortization is used | |
how do you define amortization of intangibles | the term amortization of intangibles describes the process of expensing costs associated with intangible assets such as patents and trademarks over the course of their life this is done for tax or accounting purposes simply referred to as amortization these assets are expensed into an amortization account | |
how do you compute amortization of intangibles | there are several ways to calculate the amortization of intangibles the most common way to do so is by using the straight line method which involves expensing the asset over a period of time amortization is calculated by taking the difference between the cost of the asset and its anticipated salvage or book value and dividing that figure by the total number of years that it will be used | |
where do you find amortization of intangibles on a company s financial statements | amortization of intangibles or amortization for short appears on a company s profit and loss statement under the expenses category this figure is also recorded on corporate balance sheets under the non current assets section the bottom lineamortization of intangibles or simply amortization is the process of expensing an intangible asset s cost over that asset s projected life for tax or accounting purposes intangible assets which may include various types of intellectual property such as goodwill patents and trademarks are amortized into an expense account called amortization | |
what is amortization | amortization is an accounting technique used to periodically lower the book value of a loan or an intangible asset over a set period of time concerning a loan amortization focuses on spreading out loan payments over time when applied to an asset amortization is similar to depreciation investopedia paige mclaughlinunderstanding amortizationthe term amortization refers to two situations first amortization is used in the process of paying off debt through regular principal and interest payments over time an amortization schedule is used to reduce the current balance on a loan for example a mortgage or a car loan through installment payments second amortization can also refer to the practice of spreading out capital expenses related to intangible assets over a specific duration usually over the asset s useful life for accounting and tax purposes amortization of loansamortization can refer to the process of paying off debt over time in regular installments of interest and principal sufficient to repay the loan in full by its maturity date a loan amortization schedule represents the complete table of periodic loan payments showing the amount of principal and interest that comprise each level payment until the loan is paid off at the end of its term a higher percentage of the flat monthly payment goes toward interest early in the loan but with each subsequent payment a greater percentage of it goes toward the loan s principal amortization can be calculated using most modern financial calculators spreadsheet software packages such as microsoft excel or online amortization calculators when entering into a loan agreement the lender may provide a copy of the amortization schedule or at least have identified the term of the loan in which payments must be made amortization schedules can be customized based on your loan and your personal circumstances with more sophisticated amortization calculators you can compare how making accelerated payments can accelerate your amortization if for example you are expecting an inheritance or you get a set yearly bonus you can use these tools to compare how applying that windfall to your debt can affect your loan s maturity date and your interest cost over the life of the loan accountants use amortization to spread out the costs of an asset over the useful lifetime of that asset | |
how to calculate loan amortization | the formula to calculate the monthly principal due on an amortized loan is as follows principal payment tmp olb interest rate 12 months where tmp total monthly payment olb outstanding loan balance begin aligned text principal payment text tmp big text olb times frac text interest rate text 12 months big textbf where text tmp text total monthly payment text olb text outstanding loan balance end aligned principal payment tmp olb 12 monthsinterest rate where tmp total monthly paymentolb outstanding loan balance typically the total monthly payment is specified when you take out a loan however if you are attempting to estimate or compare monthly payments based on a given set of factors such as loan amount and interest rate then you may need to calculate the monthly payment as well if you need to calculate the total monthly payment for any reason the formula is as follows total payment loan amount i 1 i n 1 i n 1 where i monthly interest payment n number of payments begin aligned text total payment text loan amount times bigg frac i times 1 i n 1 i n 1 bigg textbf where i text monthly interest payment n text number of payments end aligned total payment loan amount 1 i n 1i 1 i n where i monthly interest paymentn number of payments you ll need to divide your annual interest rate by 12 for example if your annual interest rate is 3 then your monthly interest rate will be 0 25 0 03 annual interest rate 12 months you ll also multiply the number of years in your loan term by 12 for example a four year car loan would have 48 payments four years 12 months amortization schedules usually have six columns each communicating information to the borrower and lender the six columns are often laid out as shown below pros and cons of loan amortizationamortized loans feature a level payment over their lives which helps individuals budget their cash flows over the long term amortized loans are also beneficial in that there is always a principal component in each payment so that the outstanding balance of the loan is reduced incrementally over time the main drawback of amortized loans is that relatively little principal is paid off in the early stages of the loan with most of each payment going toward interest this means that for a mortgage for example very little equity is being built up early on which is unhelpful if you want to sell a home after just a few years amortization of intangible assetsamortization can also refer to the amortization of intangibles in this case amortization is the process of expensing the cost of an intangible asset over the projected life of the asset it measures the consumption of the value of an intangible asset such as goodwill a patent a trademark or copyright amortization is calculated in a similar manner to depreciation which is used for tangible assets such as equipment buildings vehicles and other assets subject to physical wear and tear and depletion which is used for natural resources | |
when businesses amortize expenses over time they help tie the cost of using an asset to the revenues that it generates in the same accounting period in accordance with generally accepted accounting principles gaap for example a company benefits from the use of a long term asset over a number of years thus it writes off the expense incrementally over the useful life of that asset | the amortization of intangibles is also useful in tax planning the internal revenue service irs allows taxpayers to take a deduction for certain expenses geological and geophysical expenses incurred in oil and natural gas exploration atmospheric pollution control facilities bond premiums research and development r d lease acquisition forestation and reforestation and intangibles such as goodwill patents copyrights and trademarks the irs has schedules that dictate the total number of years in which to expense tangible and intangible assets for tax purposes | |
why is amortization important | amortization is important because it helps businesses and investors understand and forecast their costs over time in the context of loan repayment amortization schedules provide clarity concerning the portion of a loan payment that consists of interest versus the portion that is principal this can be useful for purposes such as deducting interest payments on income tax forms it is also useful for planning to understand what a company s future debt balance will be after a series of payments have already been made amortizing intangible assets is important because it can reduce a business s taxable income and therefore its tax liability while giving investors a better understanding of the company s true earnings intangible assets also have a finite useful life over time trademarks or patents may lose their value due to obsolescence amortizing intangible assets is also a reflection of how a company has used up the benefit of these assets amortization vs depreciationamortization and depreciation are similar concepts in that both attempt to capture the cost of holding an asset over time the main difference between them however is that amortization refers to intangible assets whereas depreciation refers to tangible assets examples of intangible assets include trademarks and patents tangible assets include equipment buildings vehicles and other assets subject to physical wear and tear another difference is the accounting treatment in which different assets are reduced on the balance sheet amortizing an intangible asset is performed by directly crediting reducing that specific asset account alternatively depreciation is recorded by crediting an account called accumulated depreciation a contra asset account the historical cost of fixed assets remains on a company s books however the company also reports this contra asset amount as a net reduced book value amount finally the calculation of each can be different this is especially true when comparing depreciation to the amortization of a loan intangible assets are often amortized over their useful life using the straight line method while fixed assets often use a much more broad set of calculation methods i e declining balance method double declining balance method sum of the years digits method or the units of production method example of amortizationlet s look at a four year 30 000 auto loan at 3 interest the monthly payment is going to be 664 03 that is arrived at as follows 30 000 0 0025 1 0025 48 1 0025 48 1 begin aligned 30 000 times bigg frac 0 0025 times 1 0025 div 48 1 0025 div 48 1 bigg end aligned 30 000 1 0025 480 0025 1 0025 48 1 in the first month 75 of the 664 03 monthly payment goes to interest 30 000 loan balance 3 interest rate 12 months begin aligned 30 000 text loan balance times 3 text interest rate div 12 text months end aligned 30 000 loan balance 3 interest rate 12 months the remaining 589 03 goes toward the principal 664 03 total monthly payment 75 interest payment begin aligned 664 03 text total monthly payment 75 text interest payment end aligned 664 03 total monthly payment 75 interest payment the total payment stays the same each month while the portion going to principal increases and the portion going to interest decreases in the final month only 1 66 is paid in interest because the outstanding loan balance at that point is very minimal compared with the starting loan balance | |
what is negative amortization | negative amortization is when the size of a debt increases with each payment even if you pay on time this happens because the interest on the loan is greater than the amount of each payment negative amortization is particularly dangerous with credit cards whose interest rates can be as high as 20 or even 30 in order to avoid owing more money later it is important to avoid over borrowing and to pay off your debts as quickly as possible | |
what does amortization mean for intangible assets | amortization measures the declining value of intangible assets such as goodwill trademarks patents and copyrights this is calculated in a similar manner to the depreciation of tangible assets like factories and equipment when businesses amortize intangible assets over time they are able to tie the cost of those assets with the revenue generated over each accounting period and deduct the costs over the lifetime of the asset | |
why is amortization important in accounting | amortization helps businesses and investors understand and forecast their costs over time in the context of loan repayment amortization schedules provide clarity into what portion of a loan payment consists of interest versus principal this can be useful for purposes such as deducting interest payments for tax purposes amortizing intangible assets is also important because it can reduce a company s taxable income and therefore its tax liability while giving investors a better understanding of the company s true earnings | |
how do you amortize a loan | a loan is amortized by determining the monthly payment due over the term of the loan next you prepare an amortization schedule that clearly identifies what portion of each month s payment is attributable towards interest and what portion of each month s payment is attributable towards principal since part of the payment will theoretically be applied to the outstanding principal balance the amount of interest paid each month will decrease your payment should theoretically remain the same each month which means more of your monthly payment will apply to principal thereby paying down over time the amount you borrowed | |
what is a 30 year amortization schedule | a 30 year amortization schedule breaks down how much of a level payment on a loan goes toward either principal or interest over the course of 360 months for example on a 30 year mortgage early in the life of the loan most of the monthly payment goes toward interest while toward the end it is mostly made up of principal it can be presented either as a table or in graphical form as a chart the bottom lineamortization is a technique of gradually reducing an account balance over time when amortizing loans a gradually escalating portion of the monthly debt payment is applied to the principal when amortizing intangible assets amortization is similar to depreciation where a fixed percentage of an asset s book value is reduced each month this technique is used to reflect how the benefit of an asset is received by a company over time correction july 17 2021 this article previously showed an incorrect formula for the example when the final numbers were derived using the principal payment formula the article has been corrected to show the right formula | |
what is amortization | amortization is an accounting technique used to periodically lower the book value of a loan or an intangible asset over a set period of time concerning a loan amortization focuses on spreading out loan payments over time when applied to an asset amortization is similar to depreciation investopedia paige mclaughlinunderstanding amortizationthe term amortization refers to two situations first amortization is used in the process of paying off debt through regular principal and interest payments over time an amortization schedule is used to reduce the current balance on a loan for example a mortgage or a car loan through installment payments second amortization can also refer to the practice of spreading out capital expenses related to intangible assets over a specific duration usually over the asset s useful life for accounting and tax purposes amortization of loansamortization can refer to the process of paying off debt over time in regular installments of interest and principal sufficient to repay the loan in full by its maturity date a loan amortization schedule represents the complete table of periodic loan payments showing the amount of principal and interest that comprise each level payment until the loan is paid off at the end of its term a higher percentage of the flat monthly payment goes toward interest early in the loan but with each subsequent payment a greater percentage of it goes toward the loan s principal 1amortization can be calculated using most modern financial calculators spreadsheet software packages such as microsoft excel or online amortization calculators when entering into a loan agreement the lender may provide a copy of the amortization schedule or at least have identified the term of the loan in which payments must be made amortization schedules can be customized based on your loan and your personal circumstances with more sophisticated amortization calculators you can compare how making accelerated payments can accelerate your amortization if for example you are expecting an inheritance or you get a set yearly bonus you can use these tools to compare how applying that windfall to your debt can affect your loan s maturity date and your interest cost over the life of the loan accountants use amortization to spread out the costs of an asset over the useful lifetime of that asset | |
how to calculate loan amortization | the formula to calculate the monthly principal due on an amortized loan is as follows principal payment tmp olb interest rate 12 months where tmp total monthly payment olb outstanding loan balance begin aligned text principal payment text tmp big text olb times frac text interest rate text 12 months big textbf where text tmp text total monthly payment text olb text outstanding loan balance end aligned principal payment tmp olb 12 monthsinterest rate where tmp total monthly paymentolb outstanding loan balance typically the total monthly payment is specified when you take out a loan however if you are attempting to estimate or compare monthly payments based on a given set of factors such as loan amount and interest rate then you may need to calculate the monthly payment as well if you need to calculate the total monthly payment for any reason the formula is as follows total payment loan amount i 1 i n 1 i n 1 where i monthly interest payment n number of payments begin aligned text total payment text loan amount times bigg frac i times 1 i n 1 i n 1 bigg textbf where i text monthly interest payment n text number of payments end aligned total payment loan amount 1 i n 1i 1 i n where i monthly interest paymentn number of payments you ll need to divide your annual interest rate by 12 for example if your annual interest rate is 3 then your monthly interest rate will be 0 25 0 03 annual interest rate 12 months you ll also multiply the number of years in your loan term by 12 for example a four year car loan would have 48 payments four years 12 months amortization schedules usually have six columns each communicating information to the borrower and lender the six columns are often laid out as shown below pros and cons of loan amortizationamortized loans feature a level payment over their lives which helps individuals budget their cash flows over the long term amortized loans are also beneficial in that there is always a principal component in each payment so that the outstanding balance of the loan is reduced incrementally over time the main drawback of amortized loans is that relatively little principal is paid off in the early stages of the loan with most of each payment going toward interest this means that for a mortgage for example very little equity is being built up early on which is unhelpful if you want to sell a home after just a few years amortization of intangible assetsamortization can also refer to the amortization of intangibles in this case amortization is the process of expensing the cost of an intangible asset over the projected life of the asset it measures the consumption of the value of an intangible asset such as goodwill a patent a trademark or copyright amortization is calculated in a similar manner to depreciation which is used for tangible assets such as equipment buildings vehicles and other assets subject to physical wear and tear and depletion which is used for natural resources | |
when businesses amortize expenses over time they help tie the cost of using an asset to the revenues that it generates in the same accounting period in accordance with generally accepted accounting principles gaap for example a company benefits from the use of a long term asset over a number of years thus it writes off the expense incrementally over the useful life of that asset | the amortization of intangibles is also useful in tax planning the internal revenue service irs allows taxpayers to take a deduction for certain expenses geological and geophysical expenses incurred in oil and natural gas exploration atmospheric pollution control facilities bond premiums research and development r d lease acquisition forestation and reforestation and intangibles such as goodwill patents copyrights and trademarks 2the irs has schedules that dictate the total number of years in which to expense tangible and intangible assets for tax purposes | |
why is amortization important | amortization is important because it helps businesses and investors understand and forecast their costs over time in the context of loan repayment amortization schedules provide clarity concerning the portion of a loan payment that consists of interest versus the portion that is principal this can be useful for purposes such as deducting interest payments on income tax forms it is also useful for planning to understand what a company s future debt balance will be after a series of payments have already been made amortizing intangible assets is important because it can reduce a business s taxable income and therefore its tax liability while giving investors a better understanding of the company s true earnings intangible assets also have a finite useful life over time trademarks or patents may lose their value due to obsolescence amortizing intangible assets is also a reflection of how a company has used up the benefit of these assets amortization vs depreciationamortization and depreciation are similar concepts in that both attempt to capture the cost of holding an asset over time the main difference between them however is that amortization refers to intangible assets whereas depreciation refers to tangible assets examples of intangible assets include trademarks and patents tangible assets include equipment buildings vehicles and other assets subject to physical wear and tear another difference is the accounting treatment in which different assets are reduced on the balance sheet amortizing an intangible asset is performed by directly crediting reducing that specific asset account alternatively depreciation is recorded by crediting an account called accumulated depreciation a contra asset account the historical cost of fixed assets remains on a company s books however the company also reports this contra asset amount as a net reduced book value amount finally the calculation of each can be different this is especially true when comparing depreciation to the amortization of a loan intangible assets are often amortized over their useful life using the straight line method while fixed assets often use a much more broad set of calculation methods i e declining balance method double declining balance method sum of the years digits method or the units of production method example of amortizationlet s look at a four year 30 000 auto loan at 3 interest the monthly payment is going to be 664 03 that is arrived at as follows 30 000 0 0025 1 0025 48 1 0025 48 1 begin aligned 30 000 times bigg frac 0 0025 times 1 0025 div 48 1 0025 div 48 1 bigg end aligned 30 000 1 0025 480 0025 1 0025 48 1 in the first month 75 of the 664 03 monthly payment goes to interest 30 000 loan balance 3 interest rate 12 months begin aligned 30 000 text loan balance times 3 text interest rate div 12 text months end aligned 30 000 loan balance 3 interest rate 12 months the remaining 589 03 goes toward the principal 664 03 total monthly payment 75 interest payment begin aligned 664 03 text total monthly payment 75 text interest payment end aligned 664 03 total monthly payment 75 interest payment the total payment stays the same each month while the portion going to principal increases and the portion going to interest decreases in the final month only 1 66 is paid in interest because the outstanding loan balance at that point is very minimal compared with the starting loan balance | |
what is negative amortization | negative amortization is when the size of a debt increases with each payment even if you pay on time this happens because the interest on the loan is greater than the amount of each payment negative amortization is particularly dangerous with credit cards whose interest rates can be as high as 20 or even 30 in order to avoid owing more money later it is important to avoid over borrowing and to pay off your debts as quickly as possible | |
what does amortization mean for intangible assets | amortization measures the declining value of intangible assets such as goodwill trademarks patents and copyrights this is calculated in a similar manner to the depreciation of tangible assets like factories and equipment when businesses amortize intangible assets over time they are able to tie the cost of those assets with the revenue generated over each accounting period and deduct the costs over the lifetime of the asset | |
why is amortization important in accounting | amortization helps businesses and investors understand and forecast their costs over time in the context of loan repayment amortization schedules provide clarity into what portion of a loan payment consists of interest versus principal this can be useful for purposes such as deducting interest payments for tax purposes amortizing intangible assets is also important because it can reduce a company s taxable income and therefore its tax liability while giving investors a better understanding of the company s true earnings | |
how do you amortize a loan | a loan is amortized by determining the monthly payment due over the term of the loan next you prepare an amortization schedule that clearly identifies what portion of each month s payment is attributable towards interest and what portion of each month s payment is attributable towards principal since part of the payment will theoretically be applied to the outstanding principal balance the amount of interest paid each month will decrease your payment should theoretically remain the same each month which means more of your monthly payment will apply to principal thereby paying down over time the amount you borrowed | |
what is a 30 year amortization schedule | a 30 year amortization schedule breaks down how much of a level payment on a loan goes toward either principal or interest over the course of 360 months for example on a 30 year mortgage early in the life of the loan most of the monthly payment goes toward interest while toward the end it is mostly made up of principal it can be presented either as a table or in graphical form as a chart the bottom lineamortization is a technique of gradually reducing an account balance over time when amortizing loans a gradually escalating portion of the monthly debt payment is applied to the principal when amortizing intangible assets amortization is similar to depreciation where a fixed percentage of an asset s book value is reduced each month this technique is used to reflect how the benefit of an asset is received by a company over time correction july 17 2021 this article previously showed an incorrect formula for the example when the final numbers were derived using the principal payment formula the article has been corrected to show the right formula | |
what is an amortized bond | an amortized bond is one in which the principal face value on the debt is paid down regularly along with its interest expense over the life of the bond a fixed rate residential mortgage is one common example because the monthly payment remains constant over its life of say 30 years however each payment represents a slightly different percentage mix of interest versus principal an amortized bond is different from a balloon or bullet loan where there is a large portion of the principal that must be repaid only at its maturity understanding amortized bondsthe principal paid off over the life of an amortized loan or bond is divvied up according to an amortization schedule typically through calculating equal payments all along the way this means that in the early years of a loan the interest portion of the debt service will be larger than the principal portion as the loan matures however the portion of each payment that goes towards interest will become lesser and the payment to principal will be larger the calculations for an amortizing loan are similar to that of an annuity using the time value of money and can be carried out quickly using an amortization calculator amortization of debt affects two fundamental risks of bond investing first it greatly reduces the credit risk of the loan or bond because the principal of the loan is repaid over time rather than all at once upon maturity when the risk of default is the greatest second amortization reduces the duration of the bond lowering the debt s sensitivity to interest rate risk as compared with other non amortized debt with the same maturity and coupon rate this is because as time passes there are smaller interest payments so the weighted average maturity wam of the cash flows associated with the bond is lower example of amortizing a bond30 year fixed rate mortgages are amortized so that each monthly payment goes towards interest and principal say you purchase a home with a 400 000 30 year fixed rate mortgage with a 5 interest rate the monthly payment is 2 147 29 or 25 767 48 per year at the end of year one you have made 12 payments most of the payments have been towards interest and only 3 406 of the principal is paid off leaving a loan balance of 396 593 the next year the monthly payment amount remains the same but the principal paid grows to 6 075 now fast forward to year 29 when 24 566 almost all of the 25 767 48 annual payments will go towards principal free mortgage calculators or amortization calculators are easily found online to help with these calculations quickly straight line vs effective interest method of amortizationtreating a bond as an amortized asset is an accounting method used by companies that issue bonds it allows issuers to treat the bond discount as an asset over the life of the bond until its maturity date a bond is sold at a discount when a company sells it for less than its face value and sold at a premium when the price received is greater than face value if a bond is issued at a discount that is offered for sale below its par or face value the discount must be treated either as an expense or it can be amortized as an asset in this way an amortized bond is used specifically for tax purposes because the amortized bond discount is treated as part of a company s interest expense on its income statement the interest expense a non operating cost reduces a company s earnings before tax ebt and therefore the amount of its tax burden amortization is an accounting method that gradually and systematically reduces the cost value of a limited life intangible asset effective interest and straight line amortization are the two options for amortizing bond premiums or discounts the easiest way to account for an amortized bond is to use the straight line method of amortization under this method of accounting the bond discount that is amortized each year is equal over the life of the bond companies may also issue amortized bonds and use the effective interest method rather than assigning an equal amount of amortization for each period effective interest computes different amounts to be applied to interest expense during each period under this second type of accounting the bond discount amortized is based on the difference between the bond s interest income and its interest payable effective interest method requires a financial calculator or spreadsheet software to derive | |
what is an amortized loan | an amortized loan is a type of loan with scheduled periodic payments that are applied to both the loan s principal amount and the interest accrued an amortized loan payment first pays off the relevant interest expense for the period after which the remainder of the payment is put toward reducing the principal amount common amortized loans include auto loans home loans and personal loans from a bank for small projects or debt consolidation | |
how an amortized loan works | the interest on an amortized loan is calculated based on the most recent ending balance of the loan the interest amount owed decreases as payments are made this is because any payment in excess of the interest amount reduces the principal which in turn reduces the balance on which the interest is calculated as the interest portion of an amortized loan decreases the principal portion of the payment increases therefore interest and principal have an inverse relationship within the payments over the life of the amortized loan 1an amortized loan is the result of a series of calculations first the current balance of the loan is multiplied by the interest rate attributable to the current period to find the interest due for the period annual interest rates may be divided by 12 to find a monthly rate subtracting the interest due for the period from the total monthly payment results in the dollar amount of principal paid in the period the amount of principal paid in the period is applied to the outstanding balance of the loan therefore the current balance of the loan minus the amount of principal paid in the period results in the new outstanding balance of the loan this new outstanding balance is used to calculate the interest for the next period amortized loans vs balloon loans vs revolving debt credit cards while amortized loans balloon loans and revolving debt specifically credit cards are similar they have important distinctions that consumers should be aware of before signing up for one of them amortized loans are generally paid off over an extended period of time with equal amounts paid for each payment period however there is always the option to pay more and thus further reduce the principal owed balloon loans typically have a relatively short term and only a portion of the loan s principal balance is amortized over that term at the end of the term the remaining balance is due as a final repayment which is generally large at least double the amount of previous payments 2credit cards are the most well known type of revolving debt with revolving debt you borrow against an established credit limit as long as you haven t reached your credit limit you can keep borrowing credit cards are different than amortized loans because they don t have set payment amounts or a fixed loan amount amortized loans apply each payment to both interest and principal initially paying more interest than principal until eventually that ratio is reversed example of an amortization loan tablethe calculations of an amortized loan may be displayed in an amortization table the table lists relevant balances and dollar amounts for each period in the example below each period is a row in the table the columns include the payment date principal portion of the payment interest portion of the payment total interest paid to date and ending outstanding balance the following table excerpt is for the first year of a 30 year mortgage in the amount of 165 000 with an annual interest rate of 4 5 can i pay off an amortized loan early yes to pay off an amortized loan early you can make payments more frequently or make principal only payments since the interest is charged on the principal making extra payments on the principal lowers the amount that can accrue interest check your loan agreement to see if you will be charged early payoff penalty fees before attempting this | |
how can i see how much of my payment is interest | most lenders will provide amortization tables that show how much of each payment is interest versus principle you can also request this information from your lender | |
do i pay more interest in the beginning of my loan or the end | amortized loans typically start with payments more heavily weighted toward interest payments the bottom linean amortized loan tackles both the projected amount of interest you ll owe and your principal simultaneously you can make extra principal payments to lower your total loan amount if your loan allows try using an amortization calculator to see how much you ll pay in interest versus principal for potential loans | |
what is the amsterdam stock exchange aex as | founded in 1602 along with the creation of the dutch east india company voc the amsterdam stock exchange is considered the oldest still functioning stock exchange in the world the need for a bank grew with the prevalence of european trade and with the need to offer financiers a way to profit in this commerce the dutch east india company was one of the earliest businesses to compete for the exports from the spice and slave trade it was a joint stock company and would offer shares to investors who would bankroll the voyages financiers required a safe and regulated place where buy and sell shares of these early global enterprises before the aex many regions and towns had independent systems of asset valuation and trade regulation which operated much like stock exchanges but the aex was the first official stock exchange as we know it the number of companies listed on the aex as of may 7 2019 the basics of the amsterdam stock exchange aex asover its centuries long history the amsterdam stock exchange has gone through several ownership changes and governance structures looking to recent history in 1997 the amsterdam stock exchange and the european options exchange eoe merged and its blue chip index was renamed aex for amsterdam exchange in september 2000 the amsterdam stock exchange merged with the brussels stock exchange and the paris stock exchange to form euronext amsterdam euronext is europe s largest cash equities market for some time fell under the umbrella of nyse euronext which operated several exchanges including the new york stock exchange the liffe in london and nyse arca options in 2014 euronext was spun off to become an independent entity once again as of 2017 euronext was the sixth largest combined stock exchange by market cap the aex is one of euronext s main indexes equity indexes of the aexeuronext amsterdam s three broad equity indexes are the blue chip aex mid cap amx and small cap ascx by far the most traded and influential index is the aex which began in 1983 and is composed of more than 20 of the most frequently traded dutch companies which trade on euronext amsterdam these companies include international businesses such as unilever ing group philips and royal dutch shell it is one of the leading national indices of the stock exchange group euronext alongside brussels bel 20 paris s cac 40 and germany s dax real world examplereview of the composition of the aex index is done each quarter with a comprehensive review conducted in march and interim reviews in june september and december any changes made to the index as a result of these examinations take effect on the third friday of the month before 2008 index changes were made only once annually in march the aex is a market capitalization weighted index with initial index weightings of any one company capped at 15 the index weights are calculated concerning the closing prices of the relevant companies on march 1 during quarterly reviews weightings after adjustment are left as close as possible to those of the previous day and are not re capped | |
analysis of variance anova is a statistical test used to assess the difference between the means of more than two groups at its core anova allows you to simultaneously compare arithmetic means across groups you can determine whether the differences observed are due to random chance or if they reflect genuine meaningful differences | a one way anova uses one independent variable a two way anova uses two independent variables analysts use the anova test to determine the influence of independent variables on the dependent variable in a regression study while this can sound arcane to those new to statistics the applications of anova are as diverse as they are profound from medical researchers investigating the efficacy of new treatments to marketers analyzing consumer preferences anova has become an indispensable tool for understanding complex systems and making data driven decisions xiaojie liu investopediausing anovaan anova test can be applied when data needs to be experimental analysis of variance is employed if there is no access to statistical software and anova must be calculated by hand it s simple to use and best suited for small samples involving subjects test groups and between and among groups anova is like several two sample t tests however it results in fewer type i errors anova groups differences by comparing each group s means and includes spreading the variance into diverse sources analysts use a one way anova with collected data about one independent variable and one dependent variable a two way anova uses two independent variables the independent variable should have at least three different groups or categories anova determines if the dependent variable changes according to the level of the independent variable researchers might test students from several colleges to see if students from one of them consistently outperforms students from the other schools in a business application a research and development researcher might test two ways of creating a product to see if one is better than the other in cost efficiency anova s versatility and ability to handle multiple variables make it a valuable tool for researchers and analysts across various fields by comparing means and partitioning variance anova provides a robust way to understand the relationships between variables and identify significant differences among groups | |
what is the android operating system | the android operating system is a mobile operating system that was developed by google googl to be primarily used for touchscreen devices cell phones and tablets its design lets users manipulate the mobile devices intuitively with finger movements that mirror common motions such as pinching swiping and tapping google also employs android software in televisions cars and wristwatches each of which is fitted with a unique user interface understanding the android operating systemthe android operating system was first developed by android inc a software company located in silicon valley before google acquired it in 2005 investors and electronics industry analysts have questioned google s true intentions for entering the mobile market space since that acquisition but in any case soon thereafter google announced the impending rollout of its first commercially available android powered device in 2007 although that product actually hit the marketplace in 2008 2since then software and application developers have been able to use android technology to develop mobile apps which are sold through app stores such as google play and because it is developed as a google product android users are given the opportunity to link their mobile devices to other google products such as cloud storage email platforms and video services the android source code is released in an open source format to help advance open standards across mobile devices however despite being released as open android is still packaged with proprietary software when sold on handset devices 1according to research from bitdefender downloader dn is the most common type of android trojan as of february 2022 it involves repacked applications taken from google app store and bunded with aggressive adware 3android operating system vs apple iosthe emergence of android created a new rivalry between smartphone manufacturers with apple aapl serving as google s chief competitor to some this competitive dynamic mirrors that of the cola wars between coca cola ko and pepsi pep over the past 40 years where no clear winner or loser has emerged android was the most popular operating system on mobile devices as of q1 2022 with 23 7 of the global market share while apple s ios was in second place with 18 according to international data corporation 4the increased popularity of the system has also led to a number of patent related lawsuits including a lawsuit brought forth by oracle orcl in 2010 the company alleged that google unlawfully used java apis to develop its android software in april 2021 the case was decided with the supreme court ruling 6 2 in google s favor 5limitations of the android operating systemwhile android offers users a viable alternative to other mobile operating systems several limitations still remain on the developer side coding complex user experiences and interfaces is an often difficult task that demands a greater reliance on java than objective c 6 for users the apps on the android market tend to have lower standards than comparable app stores in other words the apps have lower security profiles and make users more susceptible to data breaches 7 meanwhile android s lack of a voice controlled assistant and its heavy dependence on advertising can repel some users | |
what is anchoring | anchoring is a heuristic in behavioral finance that describes the subconscious use of irrelevant information such as the purchase price of a security as a fixed reference point or anchor for making subsequent decisions about that security thus people are more likely to estimate the value of the same item higher if the suggested sticker price is 100 than if it is 50 in sales price and wage negotiations anchoring can be a powerful tool studies have shown that setting an anchor at the outset of a negotiation can have more effect on the final outcome than the intervening negotiation process setting a starting point that is deliberately too high can affect the range of all subsequent counteroffers 1understanding anchoringanchoring is a cognitive bias in which the use of an arbitrary benchmark such as a purchase price or sticker price carries a disproportionately high weight in one s decision making process the concept is part of the field of behavioral finance which studies how emotions and other extraneous factors influence economic choices in the context of investing one consequence of anchoring is that market participants with an anchoring bias tend to hold investments that have lost value because they have anchored their fair value estimate to the original price rather than to fundamentals as a result market participants assume greater risk by holding the investment in the hope the security will return to its purchase price market participants are often aware that their anchor is imperfect and attempt to make adjustments to reflect subsequent information and analysis however these adjustments often produce outcomes that reflect the bias of the original anchors anchoring is often paired with a heuristic known as adjusting whereby the reference level or anchor is adjusted as conditions change and prices are re evaluated anchoring biasan anchoring bias can cause a financial market participant such as a financial analyst or investor to make an incorrect financial decision such as buying an overvalued investment or selling an undervalued investment anchoring bias can be present anywhere in the financial decision making process from key forecast inputs such as sales volumes and commodity prices to final output like cash flow and security prices historical values such as acquisition prices or high water marks are common anchors this holds for values necessary to accomplish a certain objective such as achieving a target return or generating a particular amount of net proceeds these values are unrelated to market pricing and cause market participants to reject rational decisions anchoring can be present with relative metrics such as valuation multiples market participants using a rule of thumb valuation multiple to evaluate securities prices demonstrate anchoring when they ignore evidence that one security has a greater potential for earnings growth some anchors such as absolute historical values and values necessary to accomplish an objective can be harmful to investment objectives and many analysts encourage investors to reject these types of anchors other anchors can be helpful as market participants deal with the complexity and uncertainty inherent in an environment of information overload market participants can counter anchoring bias by identifying the factors behind the anchor and replacing suppositions with quantifiable data comprehensive research and assessment of factors affecting markets or a security s price are necessary to eliminate anchoring bias from decision making in the investment process examples of anchoring biasit is easy to find examples of anchoring bias in everyday life customers for a product or service are typically anchored to a sales price based on the price marked by a shop or suggested by a salesperson any further negotiation for the product is in relation to that figure regardless of its actual cost within the investing world anchoring bias can take on several forms for instance traders are typically anchored to the price at which they bought a security if a trader bought stock abc for 100 then they will be psychologically fixated on that price for judging when to sell or make additional purchases of the same stock regardless of abc s actual value based on an assessment of relevant factors or fundamentals affecting it in another case analysts may become anchored to the value of a given index at a certain level instead of considering historical figures for example if the s p 500 is on a bull run and has a value of 3 000 then analysts propensity will be to predict values closer to that figure rather than considering the standard deviation of values which have a fairly wide range for that index anchoring also appears frequently in sales negotiations a salesman can offer a very high price to start negotiations that is objectively well above fair value yet because the high price is an anchor the final selling price will also tend to be higher than if the salesman had offered a fair or low price to start a similar technique may be applied in hiring negotiations when a hiring manager or prospective hire proposes an initial salary either party may then push the discussion to that starting point hoping to reach an agreeable amount that was derived from the anchor | |
how do you avoid anchoring bias | studies have shown that some factors can mitigate anchoring but it is difficult to avoid altogether even when people are made aware of the bias and deliberately try to avoid it in experimental studies telling people about anchoring and advising them to consider the opposite can reduce but not eliminate the effect of anchoring 2 | |
how can i use anchoring to my advantage | if you are selling something or negotiating a salary you can start with a higher price than you expect to get as it will set an anchor that will tend to pull the final price up if you are buying something or a hiring manager you would instead start with a lowball level to induce the anchoring effect lower | |
what is anchoring and adjustment | the anchoring and adjustment heuristic describes cases in which an anchor is subsequently adjusted based on new information until an acceptable value is reached over time often those adjustments however prove inadequate and remain too close to the original anchor which is a problem when the anchor is very different from the true or fair value correction july 21 2022 this article was updated to make clear a risk of anchoring resulting in buying overvalued assets or selling undervalued ones not buying undervalued assets and selling overvalued ones |
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