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why is the interest rate higher for non owner occupied properties | borrowers who do not intend to live in the property as their primary residence have a higher risk of default than borrowers who do live in the property to compensate for this risk lenders charge higher rates 1 | |
is it better to refinance or take out a loan on a second property | that depends on the equity you have in your primary residence generally rates are lower on refinances on primary residences than on non owner occupied properties get some rates from lenders so that you can do a side by side comparison can i get a better rate if i turn a property into my primary residence if after not occupying the property for a long time you decide to live in it as your primary residence you may be able to refinance to get a different rate keep in mind that every refinance has closing costs so make sure that you will have a tangible net benefit from refinancing an example of this would be someone who owns a cabin where they like to vacation who then moves into the cabin full time after retirement that individual could refinance to get a better rate on their cabin the bottom linethe term non owner occupied property is expository a non owner occupied property is one in which the owner does not occupy the property non owner occupied properties have higher loan rates than properties that are owner occupied this creates a situation where borrowers are tempted to commit occupancy fraud to get lower rates but committing mortgage fraud is always a bad idea if you do have a non owner occupied property make sure that your property is insured accordingly | |
what is a nonperforming asset npa | a nonperforming asset npa refers to a classification of loans or advances that are in default or in arrears a loan is in arrears when principal or interest payments are late or missed a loan is in default when the lender considers the loan agreement to be broken and the debtor is unable to meet their obligations | |
how nonperforming assets npas work | nonperforming assets are listed on the balance sheet of a bank or other financial institution the lender will force the borrower to liquidate any assets that were pledged as part of the debt agreement after a prolonged period of non payment the lender might write off the asset as a bad debt and sell it at a discount to a collection agency if no assets were pledged debt is typically classified as nonperforming when loan payments haven t been made for 90 days this is the standard but the amount of elapsed time can be shorter or longer depending on the terms and conditions of each loan a loan can be classified as a nonperforming asset at any point during the term of the loan or at its maturity assume a company has a 10 million loan with interest only payments of 50 000 per month it fails to make a payment for 90 days or three consecutive months the lender may be required to categorize the loan as nonperforming to meet regulatory requirements a loan can also be categorized as nonperforming if a company makes all interest payments but can t repay the principal at maturity nonperforming assets are also referred to as nonperforming loans carrying them on the balance sheet places a significant burden on the lender the nonpayment of interest or principal reduces the lender s cash flow and this can disrupt budgets and decrease earnings loan loss provisions are set aside to cover potential losses they reduce the capital available to provide subsequent loans to other borrowers the actual losses from defaulted loans are determined and then written off against earnings carrying a significant amount of npas on the balance sheet over time is an indicator to regulators that the financial fitness of the bank is at risk types of nonperforming assets npas the most common nonperforming assets are term loans but there are other forms as well recording nonperforming assets npas banks are required to classify nonperforming assets into one of three categories according to how long the asset has been nonperforming sub standard assets doubtful assets and loss assets a substandard asset is one that s classified as an npa for less than 12 months a doubtful asset is an asset that has been nonperforming for more than 12 months loss assets are loans with losses identified by the bank auditor or inspector that need to be fully written off they typically have an extended period of non payment and it can reasonably be assumed that they won t be repaid recovering losseslenders generally have four options to recoup some or all of their losses that result from nonperforming assets lenders might take proactive steps to restructure loans when companies struggle to service their debts these steps might help them maintain cash flow and avoid classifying the loan as nonperforming altogether lenders can take possession of the collateral and sell it to cover losses when loans in default are collateralized by the borrower s assets lenders can also convert bad loans into equity that may appreciate to the point of full recovery of principal lost in the defaulted loan the value of the original shares is usually eliminated when bonds are converted to new equity shares banks can sell bad debts at steep discounts to companies that specialize in loan collections as a last resort lenders typically sell defaulted loans that are unsecured or when other methods of recovery are deemed to be not cost effective | |
how is a loan restructured | restructuring involves adjusting the terms of a debt or loan to make it more manageable for the debtor to repay a lender might temporarily reduce the interest rate reduce the outstanding balance or extend the repayment term spreading the remaining balance over more months to reduce the principal | |
what are the legal steps to repossession | some states require that a lender provide the debtor with an official warning that repossession or foreclosure is about to occur allowing them to bring the loan current before any action is taken to claim the collateral the action can simply proceed in other states but this is more common with repossessions than foreclosures that typically involve taking possession of the debtor s home | |
what is a cash credit account | a cash credit account is a type of short term financing generally extended to businesses it involves withdrawals permitted from an existing account regardless of the account s balance limits are imposed however and interest is charged these accounts are typically provided for a set term such as 12 months the bottom linea nonperforming asset is a loan that s been extended and is now in default or arrears the borrower is late with payments or isn t making payments at all banks and lenders must adjust their balance sheets to accommodate nonperforming assets and they can cause a financial burden particularly over time banks and lenders might respond by repossessing or foreclosing on collateral or turning the loan over to a collection agency borrowers and lenders have rights however so consult with a finance professional or attorney if you find yourself on shaky financial ground and you re unable to repay or collect on debts | |
what is a non purpose loan | a non purpose loan is an alternative type of loan that often involves using investment securities as collateral and relies on complex structuring regulated non purpose loans can be offered by brokerages and financial institutions with some specific government regulatory documentation requirements 1 | |
how a non purpose loan works | regulated non purpose loans allow a borrower to use an investment portfolio as loan collateral though the proceeds cannot be used for purchasing carrying or trading securities one advantage of this type of loan is that it gives investors access to funds without having to sell their investments generally non purpose loans may also be featured as a lending category across a variety of lending platforms typically lenders will require a borrower to specify a loan purpose for a personal loan this is especially important with online lending platforms where retail and institutional investors choose to invest in loans by their particular purpose regulations require financial institutions to disclose whether a loan is a non purpose or purpose loan this is regulated by the federal reserve under regulation u borrowers obtaining a non purpose loan must complete a compliance form detailing the terms of the loan and its non purpose obligations 1 in general online loan platforms may also offer non purpose loans which are personal loans obtained by borrowers with no specific purpose for their use online lending investors in platforms such as lending club or prosper will often invest in platform loans based on the loan s purpose so this classification can also provide consideration in investment risk analysis 2 3 non purpose loans give investors access to funds without having to sell their investments non purpose loan vs margin loannon purpose loans are considered an alternative to traditional margin borrowing because they allow multiple investment accounts to be used to secure a loan both non purpose and margin loans will allow investors to continue to receive the benefits of their portfolio holdings such as dividends interest and appreciation both are also subject to a margin call if the value of the pledged securities declines below the specified limit nonetheless there are differences between these two types of borrowing non purpose loans are typically marketed as securities backed lines of credit sblocs they are generally more complex to obtain than a standard margin loan and as noted above they cannot be used to buy securities whereas margin loans are typically used for the sole purpose of investing in securities brokerages offer margin loans on individual investment accounts sblocs offer borrowers the opportunity to obtain a loan through the use of multiple account investments some sblocs may require a specific account to obtain the lending proceeds example of a non purpose loancharles schwab provides one example with its pledged asset line of credit product generally borrowers can access up to 70 of their collateral assets as cash through the loan agreement terms of up to five years are available and the only applicable fees are late fees like all non purpose loans the schwab s pledged asset line cannot be used to buy securities 4 | |
what are 409a plans | 409a plans are a type of non qualified deferred compensation plan for compensation that has been earned by an employee but not yet received from their employer because the ownership of the compensation which may be monetary or otherwise has not been transferred to the employee it is not yet part of the employee s earned income and is not counted as taxable income 1the internal revenue service code 409a governs for profit nqdcs such as plans for employees working for a large corporation other plans for employees of non profits or government entities are included under irs sections 457 b or 457 f 23understanding 409a plansnqdcs as 409a plans reference the section of the tax code they exist in they were created in response to the cap on employee contributions to government sponsored retirement savings plans 4 because high income earners were unable to contribute the same proportional amounts to their tax deferred retirement savings as other earners nqdcs offer a way for high income earners to defer the actual ownership of income and avoid income taxes on their earnings while enjoying tax deferred investment growth for example if sarah an executive earned 750 000 per year her maximum 401 k contribution of 22 500 for tax year 2023 would represent only 3 of her annual earnings making it challenging to save enough in her retirement account to replace her salary in retirement 5by deferring some of her earnings to an nqdc she could postpone paying income taxes on her earnings enabling her to save a higher percentage of her income than is allowable under her 401 k plan savings in an nqdc are often deferred for five or 10 years or until the employee retires an nqdc plan sponsored by for profit plan sponsors is governed by internal revenue code irc section 409a while one sponsored by a nonprofit or governmental plan sponsor is governed under irc section 457 b or 457 f 24nqdcs don t have the same restrictions as retirement plans an employee could use their deferred income for other savings goals like travel or education expenses investment vehicles for nqdc contributions vary by employer and may be similar to the 401 k investment options offered by a company limitations of nqdcsnqdcs can be a valuable savings vehicle for highly compensated workers who ve exhausted their other savings options but they re not risk free they re not protected by the employee retirement income security act erisa like 401 k s and 403 b s are if the company holding an employee s nqdc declared bankruptcy or was sued the employee s assets would not be protected from the company s creditors additionally the money from nqdcs cannot be rolled over into an ira or other retirement accounts after they re paid out another consideration is that if tax rates are higher when the employee accesses their nqdc than they were when the employee earned the income the employee s tax burden could increase | |
when do i pay tax on an nqdc plan | compensation that is put into an nqdc plan is taxed when you actually receive it this should be after you retire otherwise you may owe a penalty in addition to tax on the compensation there are also other triggering events that can prompt distributions such as a disability 6 | |
how is deferred compensation taxed | deferred compensation is taxed when you receive it this means that it will be taxed according to your income bracket when you take a distribution from your nqdc not your tax bracket when you first earned the income | |
how do i report distributions from a 409a plan | distributions from a 409a plan are income that you previously earned but did not receive until you took the distribution this means that they will be reported by your employer on a w 2 form which you should receive even if you are no longer an employee at that company it may also be reported on form 1099 misc the bottom linea 409a plan is a type of non qualified deferred compensation nqdc plan that allows high earners to save more for retirement because the compensation that goes into these accounts has been earned by the employee but not yet received by them it is not yet taxable nqcd plans come with some risks they are not protected from employer bankruptcy the way other retirement plans are and they cannot be rolled over into an ira but these plans can still benefit high earning employees by allowing them to save more than they would otherwise be able to save in a retirement account like a 401 k | |
what is a non qualified plan | a non qualified plan is a type of tax deferred employer sponsored retirement plan that falls outside of employee retirement income security act erisa guidelines non qualified plans are designed to meet specialized retirement needs for key executives and other select employees they can act as recruitment and or employee retention tools these plans are also exempt from the discriminatory and top heavy testing that qualified plans are subject to | |
how a non qualified plan works | there are four major types of non qualified plans the contributions made to these types of plans are usually nondeductible for the employer and taxable for the employee however they allow employees to defer taxes until retirement when they presumably will be in a lower tax bracket non qualified plans are often used to provide specialized forms of compensation to key executives or employees instead of making them partners or part owners in a company or corporation one of the other major goals of a non qualified plan is to allow highly compensated employees to contribute to another retirement plan after their qualified retirement plan contributions have been maxed out which usually happens quickly given their level of compensation deferred compensation plansthere are two types of deferred compensation plans true deferred compensation plans and salary continuation plans the primary difference between the two is in the funding source with a true deferred compensation plan the executive defers a portion of their income which is often bonus income with a salary continuation plan the employer funds the future retirement benefit on the executive s behalf both plans allow for the earnings to accumulate tax deferred until retirement when the internal revenue service irs will tax the income received as if it were ordinary income other planswith an executive bonus plan a company issues an executive a life insurance policy with employer paid premiums as a bonus premium payments are considered compensation and are deductible by the employer the bonus payments are taxable to the executive in some cases the employer may pay a bonus over the premium amount to cover the executive s taxes a split dollar plan is used when an employer wants to provide a key employee with a permanent life insurance policy under this arrangement an employer purchases a policy on the employee s life and the employer and the employee divide ownership of the policy the employee may be responsible for paying the mortality cost while the employer pays the balance of the premium at death the employee s beneficiaries receive the main portion of the death benefit while the employer receives a portion equal to its investment in the plan a group carve out plan is another life insurance arrangement in which the employer carves out a key employee s group life insurance over 50 000 and replaces it with an individual policy this allows the key employee to avoid the imputed income on group life insurance above 50 000 the employer redirects the premium it would have paid on the excess group life insurance to the individual policy owned by the employee | |
what is an example of a non qualified plan | consider a high paid executive working in the financial industry who has contributed the maximum to their 401 k and is looking for additional ways to save for retirement at the same time their employer offers non qualified deferred compensation plans to executives this allows the executive to defer a greater part of their compensation along with taxes on this money into this plan | |
what are deferred compensation plans | both types of deferred compensation plans true deferred compensation plans and salary continuation plans are designed to provide executives with supplemental retirement income the plan holds assets that are not taxed or paid out as income until some point in the future | |
what is the maximum you can contribute to a 401 k | the most you can contribute to a 401 k in 2024 is 23 000 if you re under age 50 if you re age 50 or older you have the option to make a catch up contribution of up to 7 500 for 2023 you can contribute up to 22 500 if you re under age 50 the catch up contribution limit is still 7 500 the bottom lineoften employers and executives will agree on a set period that the income will be deferred which could be anywhere from five years up until retirement ultimately the deferred income has the ability to grow tax deferred until it is distributed these deferral amounts may change from year to year depending on the agreement between the executive and employer | |
what is a non qualified stock option nso | a non qualified stock option nso is a type of employee stock option wherein you pay ordinary income tax on the difference between the grant price and the price at which you exercise the option nsos are simpler and more common than incentive stock options isos they are called non qualified stock options because they do not meet all of the requirements of the internal revenue code to be qualified as isos 1 | |
what is a non qualified stock option nso | a non qualified stock option nso is a type of employee stock option wherein you pay ordinary income tax on the difference between the grant price and the price at which you exercise the option nsos are simpler and more common than incentive stock options isos they are called non qualified stock options because they do not meet all of the requirements of the internal revenue code to be qualified as isos 1 | |
non recourse debt is a type of loan secured by collateral commonly property if the borrower defaults the issuer can seize the collateral but cannot seek out the borrower for any further compensation even if the collateral does not cover the full value of the defaulted amount a non recourse debt does not hold the borrower personally liable for the loan 1 | understanding non recourse debtnon recourse debt poses a greater risk to the lender than recourse debt especially if the resale value of a loan s collateral decreases below the owed balance throughout the life of the loan 1conversely recourse debt allows the lender to pursue the borrower for any balance that remains after liquidating the collateral for this reason lenders charge higher interest rates on non recourse debt to compensate for the elevated risk 2recourse vs non recourse debtrecourse debt gives the creditor full autonomy to pursue the borrower for the total debt owed in the event of default both unsecured and secured personal loans can be recourse debts where the borrower assumes all risk and is personally liable after liquidating the collateral any balance that remains is known as a deficiency balance the lender may attempt to collect this balance by several means including filing a lawsuit and obtaining a deficiency judgment in court | |
when a debt is non recourse the lender may liquidate the collateral but may not attempt to collect the deficiency balance non recourse loans are a type of loan where the bank assumes most of the risk | with non recourse debt the creditor s only protection against borrower default is the ability to seize the collateral and liquidate it to cover the debt owed non recourse debt exampleif an auto lender loans a customer 30 000 at zero interest for a five year loan to purchase a new vehicle the new car s value historically will decline in value following the purchase if the borrower stops making car payments after one year the vehicle may be worth only 22 000 yet the borrower still owes 26 000 with the customer s default the lender repossesses the car and liquidates it for its full market value leaving a deficient balance of 4 000 if the loan was a non recourse loan the lender assumes the loss | |
when is a loan issued as non recourse | whether a debt is a recourse or nonrecourse loan often depends on state law 1some states may require that all mortgages are nonrecourse debt and in the instance of a default lenders cannot pursue a deficiency judgment after collateral has been seized who can qualify for a non recourse loan because non recourse debt poses a greater risk to the lender a borrower may need high credit scores and a low loan to value ratio the interest rates on non recourse loans may also be higher to compensate for the risk | |
what is non recourse finance | non recourse finance is a type of commercial lending that entitles the lender to repayment only from the profits of the project the loan is funding and not from any other assets of the borrower such loans are generally secured by collateral a non recourse loan more broadly is any consumer or commercial debt that is secured only by collateral in case of default the lender may not seize any assets of the borrower beyond the collateral a mortgage loan is typically a non recourse loan understanding non recourse financenon recourse financing is a branch of commercial lending that is characterized by high capital expenditures distant repayment prospects and uncertain returns in fact it is similar in character and risks to venture capital financing for example say a company wants to build a new factory the borrower presents a bank with a detailed plan for the construction in addition to a business plan for the greatly expanded production that it will enable the company to undertake repayment can be made only when the factory is up and running and only with the profits of that production the lender is agreeing to terms that do not include access to any of the borrowers assets beyond the agreed upon collateral even if they default on the loans payments will only be made when and if the funded projects generate revenue if a project produces no revenue the lender receives no payment on the debt once the collateral is seized the bank cannot go after the borrowers in hopes of recouping any remaining losses non recourse loans and recourse loans are subject to different tax treatments in the u s 1 | |
where non recourse loans are used | compare a non recourse loan with the more conventional loan in which the borrower must begin repaying immediately and in installments every month thereafter not surprisingly interest rates are generally higher on non recourse loans to compensate for the elevated risk substantial collateral is also required non recourse loans are often used to finance commercial real estate ventures and other projects that involve a long lead time to completion in the case of real estate the land provides the collateral for the loan they also are used in the financial industry with securities used as collateral special considerations for non recourse loansnon recourse loans and recourse loans are subject to different tax treatments in the u s non recourse loans are considered to be paid in full once the underlying asset is seized regardless of the price at which the asset is sold in the case of recourse debt if the financial institution forgives any part of the debt after the associated asset is seized and sold the forgiven amount may be treated as ordinary income that the debtor must report to the internal revenue service | |
are non recourse loans taxable | if you default on a non recourse loan the amount forgiven or canceled is not taxed 2 | |
what industries use non recourse loans | non recourse loans are very popular in the real estate industry in addition to other industries that have long project timelines since there may not be any income at the beginning of the project a non recourse loan gives a measure of breathing room to project financers can a lender come for my personal assets with a non recourse loan no a non recourse loan is secured only by the listed collateral a mortgage is a good example if you default on your mortgage the bank can seize the house to recoup their investments but they can t seize your car or bank accounts the bottom linenon recourse loans offer several benefits to businesses planning large projects including different tax considerations and the ability to avoid payment until the project comes to fruition while it s never ideal to default on a loan a non recourse loan can save your other assets from seizure in the event of default | |
what is a nonrefundable tax credit | a nonrefundable tax credit is a reduction in the amount of income taxes that a taxpayer owes it can reduce the amount owed to zero but no further in other words the taxpayer forfeits any credit that exceeds the total amount of taxes owed by contrast a refundable tax credit results in a refund from the internal revenue service irs if the credit reduces the taxpayer s liability to a number below zero refundable and nonrefundable tax credits are both directly subtracted from the amount of taxes that a taxpayer owes tax deductions on the other hand are subtracted from the taxpayer s taxable income tax credits generally result in bigger savings especially for lower income filers | |
how nonrefundable tax credits work | the u s tax code provides certain tax breaks in the form of tax credits that reduce the tax liability of eligible taxpayers a tax credit is applied to the amount of tax owed by the taxpayer after all other allowable deductions are made from the person s taxable income a tax credit reduces the total tax bill of an individual dollar for dollar a tax credit can be either refundable or nonrefundable a refundable tax credit usually results in a refund check if the tax credit is more than the individual s total tax liability for example a taxpayer who applies a 3 400 refundable tax credit to a 3 000 tax bill will have the bill reduced to zero and the remaining portion of the credit 400 refunded to the taxpayer a nonrefundable tax credit does not result in a refund to the taxpayer as it will only reduce the tax owed to zero following the example above if the 3 400 tax credit was nonrefundable the individual will owe nothing to the government but will forfeit the 400 that remains unused after the credit is applied 1a tax deduction reduces the income subject to tax but a tax credit reduces the amount of taxes that are owed on a dollar for dollar basis 1 | |
which is the better benefit depends on the taxpayer s marginal tax rate if a taxpayer is entitled to a tax deduction of 100 and has a marginal tax rate of 30 the deduction will save the taxpayer 30 if the same taxpayer is entitled to a tax credit of 50 of an expenditure of 100 the savings is 50 however if the same taxpayer claims a tax credit for 20 of 100 the savings is only 20 | unlike tax deductions which reduce taxable income a tax credit reduces the amount of tax that you owe dollar for dollar examples of nonrefundable tax creditscommonly claimed tax credits that are nonrefundable include some nonrefundable tax credits such as the general business credit gbc and foreign tax credit ftc allow taxpayers to carry any unused amounts backward to a prior year and forward to future tax years however time limits apply to the carryover rules and they differ depending on the specific credit for example while unused portions of the gbc may be carried forward up to 20 years an individual can carry unused ftc amounts forward only up to 10 years 45strategies for maximizing nonrefundable creditsif a taxpayer has both refundable and nonrefundable tax credits the benefits can be maximized by applying the nonrefundable credits before claiming any refundable credits nonrefundable tax credits should be used first to minimize the taxes owed only then should the refundable tax credits be applied to reduce the tax liability even further to the point that the liability reaches zero if any refundable credits are unused after the total tax liability is completely offset the taxpayer will receive a refund check for the total amount of unused credits if the refundable credits were claimed first there is a risk that all the refundable credits will be used to offset taxes due and any remaining nonrefundable credits will only reduce the tax owed to zero the unused nonrefundable credits will not entitle the taxpayer to a refund low income taxpayers often are unable to use the entire amount of their nonrefundable credits nonrefundable tax credits are valid only in the year when they are generated they expire if unused and may not be carried over to future years for the 2023 tax year specific examples of nonrefundable tax credits include credits for adoption credits for energy efficient residential property and the saver s tax credit for funding retirement accounts 2 | |
what is the foreign tax credit | the foreign tax credit ftc is a nonrefundable credit for u s taxpayers who have income overseas that minimizes double taxation since american citizens must pay u s income tax on all sources of income domestic or foreign the ftc offsets some of the foreign tax already paid on the same income 6can i receive a tax refund if i use a nonrefundable tax credit sure you ll still receive the refund that you qualify for but it won t include a reimbursement for any unused portion of your nonrefundable tax credit it also depends on how much tax withholding you ve had during the year nonrefundable credits only reduce the amount you owe in taxes and do not pay you a refund if your tax bill goes to zero and the whole credit has not been used however if you have zero taxable income due to such credits and you paid taxes monthly via payroll withholding you will likely receive some or all of that back as a refund on their own nonrefundable credits cannot generate a refund or be used to increase the amount you would otherwise receive 1 | |
what are examples of refundable tax credits | refundable tax credits are refunded to the taxpayer regardless of the taxpayer s liability these include the earned income tax credit eitc and the additional child tax credit actc 78the bottom linenonrefundable tax credits can reduce a taxpayer s bill to zero but no further if the taxpayer owes less in taxes than the nonrefundable credit is worth they don t get reimbursed for the unused credit the opposite is true of a refundable credit taxpayers entitled to both types of credits should apply their nonrefundable credits first only then should they figure in refundable credits that could yield a refund | |
what are non renounceable rights | a non renounceable rights issue refers to an offer issued by a corporation to shareholders to purchase more shares of the corporation usually at a discount unlike a renounceable right a non renounceable right is not transferable and therefore cannot be bought or sold understanding non renounceable rightsissuing more shares dilutes the value of outstanding stock but because the rights issue allows existing shareholders to buy the newly issued stock at a discount they are compensated for the impending share dilution the compensation the rights issue gives them is equivalent to the cost of share dilution however shareholders who do not take exercise the rights by buying the discounted stock will lose money as their existing holdings will suffer from the dilution a renounceable right is also an invitation to a company s existing shareholders to buy additional new shares in the company if the shareholders are not required to immediately pay for the new shares it is called nil paid shares while shareholders have the authority to buy more shares they can renounce that privilege and trade their rights on the open market | |
why companies offer non renounceable rights | by offering non renounceable rights the company is setting a narrow window of opportunity for shareholders to purchase stock at discount offering such rights can be seen as more favorable to the company than to existing shareholders despite a discount being offered if the shareholders do not have sufficient funds at the time the non renounceable rights are exercisable they may lose the opportunity to buy at the discount rate regardless of what action the existing shareholders take the company will proceed with issuing more stock a company might offer non renounceable rights on shares if there s a timeframe and capital objective the business needs to meet it may need to raise funds for an acquisition expand its operations through hiring or adding new locations paying back debts or any number of things the company might be facing bankruptcy if it doesn t address its capital circumstances if the company must raise capital to maintain its prospects as a going concern it might be necessary to issue shares regardless of the potential dilution to existing shares non renounceable rights are a way for the company to give existing shareholders the chance to maintain their stake in the business while controlling the leeway available to them to take advantage of the discounts for shareholders this can be seen as a less than desirable option than being offered rights they could conceivably sell on the market and see returns for themselves | |
what is a non sampling error | a non sampling error is a statistical term that refers to an error that results during data collection causing the data to differ from the true values a non sampling error differs from a sampling error a sampling error is limited to any differences between sample values and universe values that arise because the sample size was limited the entire universe cannot be sampled in a survey or a census a sampling error can result even when no mistakes of any kind are made the errors result from the mere fact that data in a sample is unlikely to perfectly match data in the universe from which the sample is taken this error can be minimized by increasing the sample size non sampling errors cover all other discrepancies including those that arise from a poor sampling technique | |
how a non sampling error works | non sampling errors may be present in both samples and censuses in which an entire population is surveyed non sampling errors fall under two categories random and systematic random errors are believed to offset each other and therefore most often are of little concern systematic errors on the other hand affect the entire sample and therefore present a more significant issue random errors generally will not result in scrapping a sample or a census whereas a systematic error will most likely render the data collected unusable non sampling errors are caused by external factors rather than an issue within a survey study or census there are many ways non sampling errors can occur for example non sampling errors can include but are not limited to data entry errors biased survey questions biased processing decision making non responses inappropriate analysis conclusions and false information provided by respondents special considerationswhile increasing sample size can help minimize sampling errors it will not have any effect on reducing non sampling errors this is because non sampling errors are often difficult to detect and it is virtually impossible to eliminate them non sampling errors include non response errors coverage errors interview errors and processing errors a coverage error would occur for example if a person were counted twice in a survey or their answers were duplicated on the survey if an interviewer is biased in their sampling the non sampling error would be considered an interviewer error in addition it is difficult to prove that respondents in a survey are providing false information either by mistake or on purpose either way misinformation provided by respondents count as non sampling errors and they are described as response errors technical errors exist in a different category if there are any data related entries such as coding collection entry or editing they are considered processing errors | |
what is a non security | a non security is an alternative investment that is not traded on a public exchange as stocks and bonds are assets such as art rare coins life insurance gold and diamonds all are non securities non securities by definition are not liquid assets that is they cannot be easily bought or sold on demand as no exchange exists for trading them non securities also are known as real assets understanding non securitiesindividual markets exist for non securities ranging from auctions to private listings however these are generally specialized sources non securities cannot be purchased on a public exchange such as the nyse or the nasdaq while they do not trade on public market exchanges they may be components of packaged investment offerings that are traded on public exchanges such as exchange traded funds etfs high net worth investors may have comprehensive portfolios that include valuable non security assets such as fine art precious metals and real estate investors may also buy funds that manage portfolios of real assets such as gold these funds trade on public exchanges the spdr gold shares etf is one example the portfolio is fully invested in gold bullion this etf lowers the barriers for investors who would like to hold gold real assets in their portfolio 1some personal financial assets such as life insurance could be called non securities however non security assets do not themselves undergo an institutionalized process for public trading on exchanges this makes them highly illiquid investments in contrast to securities such as stocks mutual funds and bonds the valuation process for non securities also differs market experts in each type of non security typically appraise them to estimate their valuations in some cases non securities may require authentication and registration to support their use and potential sale these assets however do not require the backing of an underwriter or bank and involve much less documentation and paperwork some personal financial assets such as life insurance and annuities could be considered non securities investors have the option to invest in these non security assets through an insurance company life insurance and annuities are two types of non security assets that are not publicly traded but rather contractual agreements made with a sponsoring company life insurance and annuities require regular premium payments that help to build out a portfolio that offers a payout in the future life insurance plans can be used to provide for dependents following the death of a family member annuity plans may also offer provisions for life insurance however they are often used as vehicles for retirement savings with consistent annuity payouts scheduled to follow a targeted payout date that makes them assets although they are not securities | |
what are non sufficient funds nsf | non sufficient funds nsf or insufficient funds is the status of a checking account that does not have enough money to cover all transactions nsf also describes the fee charged when a check is presented but cannot be covered by the balance in the account customers will see a non sufficient funds or insufficient funds notice on a bank statement when attempting to withdraw more money than their account holds | |
how non sufficient funds fees work | banks often charge nsf fees when a presented check is returned or payment cannot be made due to a lack of funds to cover it nsf fees average 34 each according to 2022 data from the consumer financial protection bureau cfpb 1 | |
when a check is written and deposited by the payee their financial institution must make the funds available to them within two business days after they make the deposit if funds are not available from the payer s bank account it is deemed as insufficient and an nsf fee is assessed | banks provide account holders with several options to avoid the penalties associated with an insufficient funds transaction customers can opt out of overdraft policies that allow the bank to cover charges and add an nsf fee or link at least one backup account such as a savings account or credit card to fund the insufficient account in 2023 the cfpb issued a report saying it found numerous financial institutions charging multiple nsf fees for the same transaction potentially as soon as the next day while this is not illegal the cfpb said that consumers could not reasonably avoid the penalties for which some institutions reaped millions of dollars in fees and that the fees weren t justified by benefits to consumers or competition as a result nearly all of the banks and credit unions the cfpb engaged with provided plans to stop charging nsf fees altogether 2nsf fees vs overdraft feesnon sufficient funds and overdrafts are two distinct bank transactions both relate to insufficient funds and can trigger fees banks charge nsf fees when they return presented payments without payment like a check and overdraft fees when they accept and pay the checks that overdraw checking accounts a customer with 100 in a checking account may initiate an automated clearing house ach or electronic check payment for a purchase in the amount of 120 if the bank refuses to pay the check an nsf fee is incurred if the bank accepts the check and pays the seller the checking account balance falls to 20 and incurs an overdraft od fee overdraft protection is often an option for banking customers if a customer has 20 in a checking account and attempts to make a 40 purchase with a debit or check card and has not opted in to the bank s overdraft plan the transaction will be declined by the retailer if the customer has od protection the transaction may be accepted and the bank may assess an od fee however if the customer wrote a check for the 40 transaction the bank may honor it and assess an od fee or reject it and assess an nsf fee regardless of whether or not the customer has joined the overdraft program | |
how to avoid nsf fees | many banks now allow you to set up low balance alerts you get a text or email notification when the funds in your account drop below a figure you designate that can help you keep track of how much money is currently available and you can adjust your spending accordingly criticism of nsf feesthe cfpb oversees and protects consumers while using financial services in 2010 sweeping bank reform laws addressed overdraft and nsf fees and implemented guidance allowing consumers to opt for overdraft protection through their banks more protections for consumers become increasingly urgent as financial institutions mishandle fee policies 3financial institutions have reordered transactions processing debits to consumer accounts in a way to maximize overdraft fees by deducting the largest first rather than in chronological order in 2011 bank of america settled a two year old class action for 410 million for reordering customer transactions and charging overdraft fees in this way td bank paid over 62 million in a class action settlement for the same mismanagement of fees in 2010 4in 2020 the bank of hawaii set up a settlement fund of 8 million to repay clients who had been charged for authorized customer payments while funds were available but settled the debits once the accounts moved to an insufficient status and charging fees the bank agreed to forgive overdraft fees that remained unpaid 5financial institutions have practiced single transaction multiple fee activity assessing more than one nsf fee on a single item or transaction if the payment request is automatically re submitted repeatedly by the creditor in 2020 the navy federal credit union settled such a case for 16 million without conceding any wrongdoing or liability 6this was followed by the 2023 cfpb report that found a number of banks and credit unions had engaged in similar actions as navy federal the institutions then said they would reimburse wronged consumers and issued plans to stop charging any nsf fees 2frequently asked questions | |
why do banks charge an nsf fee | banks charge nsf fees for the cost and inconvenience of having to return declined checks for many overdraft nsf fees have emerged as the no 1 generator of fee income and is one of the bank s most profitable sources of revenue a woodstock institute report noted quoting american banker 7 | |
are nsf fees legal | yes nsf fees are legal on bounced checks and should not be charged on debit card transactions or atm withdrawals the u s government doesn t regulate nsf fees or the size of fees but the truth in lending act does require banks to disclose their fees to customers when they open an account can an nsf fee be waived bank policies vary but an nsf fee can often be waived through an nsf reversal after the fact especially if it s the first time that it s been assessed calling the bank s customer service line and requesting a refund is the best course of action for a consumer | |
do nsf fees affect your credit | nsf fees don t affect a customer s credit or credit score directly because banks do not report the transactions to credit bureaus such as equifax transunion and experian however a bounced check can make delay a credit card or loan payment which may affect a customer s credit score | |
what happens if i don t pay my nsf fees | customers don t have an option to avoid paying nsf fees as the bank automatically deducts them from the account the bottom linenon sufficient funds and the fees they incur are irritating but are common banking occurrences though increasingly the focus of criticism and lawsuits nsf fees remain legal but the cfpb helps to protect consumers by monitoring such charges customers can avoid fees by monitoring their bank balances or by signing up for overdraft protection | |
what is a non taxable distribution | a non taxable distribution is a payment to shareholders it is similar to a dividend but it represents a share of a company s capital rather than its earnings contrary to what the name might imply it s not really non taxable it s just not taxed until the investor sells the stock of the company that issued the distribution non taxable distributions reduce the basis of the stock stock received from a corporate spinoff may be transferred to stockholders as a non taxable distribution dividends paid to cash value life insurance policyholders are considered non taxable distributions non taxable distributions also may be referred to as non dividend distributions or return of capital distributions understanding non taxable distributionsa non taxable distribution to shareholders is not paid from the earnings or profits of a company or a mutual fund it is a return of capital meaning that investors are getting back some of the money they invested in the company examples of non taxable distributions include stock dividends stock splits stock rights and distributions received from a partial or complete liquidation of a corporation the distribution is a non taxable event when it is disbursed but it will be taxable when the stock is sold shareholders who receive non taxable distributions must reduce the cost basis of their stock accordingly when the shareholder sells the stock the capital gain or loss that results will be calculated from the adjusted basis for example say an investor purchases 100 shares of a stock for 800 during the tax year the investor receives a non taxable distribution of 90 from the company the cost basis will be adjusted to 710 the price paid for the shares minus the distribution the following year the investor sells the shares for 1 000 for tax purposes the investor s capital gain is 290 the 200 profit plus the 90 distribution the amount of a non dividend distribution is usually smaller than the investor s basis in the shares in the rare case in which the distribution is more than the basis the shareholder must reduce their cost basis to zero and report the excess amount of the distribution as a capital gain on irs form schedule d for example assume the investor in the example above receives a total of 890 in non taxable dividends the first 800 of the distribution will reduce the cost basis to zero the remaining 90 must be reported as a short or long term capital gain depending on whether the shares were held for a year or less non taxable distributions are generally reported in box 3 of form 1099 div return of capital shows up under the non dividend distributions column on the form the investor may receive this form from the company that paid the dividend if not the distribution may be reported as an ordinary dividend irs publication 550 provides detailed information to investors about reporting requirements for investment income including non dividend distribution income | |
what is a non traded reit | non traded reits are not listed on public exchanges and can provide retail investors access to inaccessible real estate investments with tax benefits understanding non traded reitsa non traded reit is a form of real estate investment method that is designed to reduce or eliminate tax while providing returns on real estate a non traded reit does not trade on a securities exchange and because of this is quite illiquid for long periods of time front end fees can be as much as 15 much higher than a traded reit due to its limited secondary market the expectation of any reit is that the investor will eventually see income from its real estate portfolio with rent being the most common source of income the types of properties that a non traded reit invests in early on might be unknown to the investors and the initial property acquisitions might be made through a blind pool where the investors do not know the specific properties that are being added to the program s portfolio early redemption of a non traded reit can result in high fees that can lower the total return like exchange traded reits non traded reits are subject to the same irs requirements that include returning at least 90 of taxable income to shareholders investors tend to seek exchange traded and non traded reits for their income distribution despite not being listed on any national securities exchanges non traded reits must still be registered with the securities and exchange commission sec they are also required to make regular periodic regulatory filings this includes quarterly and annual reports as well as filing a prospectus non traded reits could remain illiquid for years after their inception because they are not traded on national exchanges and may not have a steady income at the beginning periodic distributions to shareholders of non traded reits may be largely subsidized by borrowed funds such distributions are not guaranteed to be paid and may exceed the reit operating cash flow the board of directors for the non traded reit can decide whether or not to pay distribution and what amount will be given when a non traded reit is just getting started its earliest distributions might come entirely from the capital the investors put into it many non traded reits are structured with a built in finite time frame before which one of two actions must be taken at the end of the period the non traded reit must either become listed on a national exchange or must liquidate the value of the investment made into such a reit could have decreased or become worthless at the time the program is liquidated | |
what is the nonaccrual experience nae method | the nonaccrual experience nae method is an accounting procedure allowed by the internal revenue code irc for handling bad debts this method can only be applied to bad debts for services performed in the fields of accounting actuarial science architecture consulting engineering health law or the performing arts the company in question also must have average annual gross receipts for any three prior tax years of less than 5 million more information can be found in irs publication 535 business expenses 1understanding the nonaccrual experience nae methoda company incurs a bad debt when it can t collect the money that it is owed bad debts that cannot be claimed on the business s tax return using the nonaccrual experience method may be claimed using the specific charge off method which is more common under nae the firm can estimate the level of debt that will end up being bad debt based upon their own past experiences with customers and vendors a nonaccrual experience method of accounting as described in sec rule 448 d 5 allows certain service providers to exclude from accrual the portion of revenue they have determined will not be collected based on their own experience and through the use of formulas allowed under this section and the regulations these service providers must fall under the following categories in the fields of according to the rule a taxpayer is eligible to use an nae method of accounting if the taxpayer uses an accrual method of accounting with respect to amounts received for the performance of services by the taxpayer is in one of the above listed service sectors and earned less than 5 million in gross receipts in any one of the past three tax years the matching principle requires that expenses be matched to related revenues in the same accounting period in which the revenue transaction occurs to comply with gaap tax rules bad debt expenses must be estimated using the allowance method in the same period in which the sale occurs using the nonaccrual experience methodthere are several ways that nae can be employed for instance a taxpayer can request the irs s consent to change to a formula that clearly reflects the taxpayer s experience this item focuses on the nuances surrounding the adoption of or change to the safe harbor nae methods safe harbor refers to an accounting method that avoids legal or tax regulations or one that allows for a simpler method of determining a tax consequence than the methods described by the precise language of the tax code in september 2011 the irs released a revised rule that allowed a safe harbor method for taxpayers accounting for revenues using the nae method to compute uncollectible revenues by applying a factor of 95 to their allowance for doubtful accounts as determined through the taxpayer s applicable financial statements | |
what is a nonaccrual loan | nonaccrual loan is an accounting term in the lending industry for an unsecured loan that is no longer generating its stated interest rate because no payment has been made by the borrower for 90 days or more for a lender in business to earn interest it has become a nonperforming loan npl loans generate interest only when the borrower makes a payment a portion of which is applied to interest and the rest to the principal the interest on loans is recorded as income by the lender if no interest has been paid by the customer the expected interest has not accrued so the loan has become nonaccrual nonaccrual loans are sometimes referred to as doubtful loans troubled loans or sour loans | |
when no payment has been received for 90 days a loan becomes nonaccrual the bank classifies the loan as substandard and reports the change to the credit reporting agencies which lowers the borrower s credit score | the lender also changes its allowance for the potential loan loss sets aside a reserve to protect the bank s financial interests and may take legal action against the borrower since regular payment of both principal and interest is expected by the lender interest income from loans is usually assumed when a loan becomes nonaccrual the interest is no longer an assumed payment so the loan is put on a cash basis interest will be recorded as income again only if payment is eventually collected according to the federal deposit insurance corporation fdic an asset should be reported as being in nonaccrual status if one of three criteria is met an unaccrued loan is classified as substandard and the borrower is reported to credit agencies returning a loan to accrual statusafter entering nonaccrual status the borrower can usually work with the lender to determine a plan for paying off the debt for example a loan can be returned to accrual status if the borrower pays all the overdue principal interest and fees and resumes the regular monthly payments defined in the contract if both parties agree another option involves resuming the scheduled principal and interest payments for six months and providing the lender reasonable reassurance that the outstanding principal interest and fees will be paid within a set period of time a third option requires the borrower to provide collateral for securing the loan to the lender repaying the outstanding balance within 30 to 90 days and resuming monthly payments after reviewing the borrower s income and expense status another option is for the lender to create a troubled debt restructuring tdr the tdr may erase part of the loan s principal or interest payments lower the interest rate allow interest only payments or modify the repayment terms in some other way lower debt payments may be accepted until the borrower s financial situation improves can any loan become nonaccrual lenders can put almost any loan into nonaccrual status if payments are 90 days behind with the exception of secured loans backed by solid collateral e g a mortgage backed by a house if a secured loan goes into default the lending institution can seize the collateral and liquidate it to recover the unpaid balance | |
what are the requirements for troubled debt restructurings tdrs | the office of the comptroller of the currency occ lists accounting and reporting requirements for lenders seeking to establish troubled debt restructurings tdrs for nonaccrual loans a borrower in financial difficulties can work with the lender to determine whether a tdr is appropriate in their situation | |
what does cash basis loan mean | cash basis means that the lending institution has sent the loan into nonaccrual status because the lender hasn t received interest for 90 days or more they can t record it as accrued income they have to record it on a cash basis | |
what is noncallable | noncallable security is a financial security that cannot be redeemed early by the issuer except with the payment of a penalty the issuer of a noncallable bond subjects itself to interest rate risk because at issuance it locks in the interest rate it will pay until the security matures if interest rates decline the issuer must continue paying the higher rate until the security matures most treasury securities and municipal bonds are noncallable understanding noncallablespreferred shares and corporate bonds have call provisions that are stipulated in the share prospectus or trust indenture at the time of security issuance a call provision may indicate that a bond is callable or noncallable callable security can be redeemed early and pays a premium to compensate the investor for the risk that they will not earn any additional interest in the event that the security is redeemed prior to its maturity date bonds are often called when interest rates drop because lower interest rates mean the company can refinance its debt at a lower cost for example if prevailing interest rates in the economy decrease to 3 an existing bond that pays a 4 coupon rate will represent a higher cost of borrowing for the issuing firm to reduce its costs the issuing firm may decide to redeem the existing bonds and reissue them at the lower interest rate while this move is advantageous to issuers bond investors are at a disadvantage as they are exposed to reinvestment risk or simply risk of reinvesting proceeds at a lower interest rate a bond may also be noncallable either for the duration of the bond s life or until a predetermined period of time has passed after initial issuance a bond that is entirely noncallable cannot be redeemed early by the issuer regardless of the level of interest rates in the market noncallable bondholders are protected from income loss that is caused by premature redemption they are guaranteed regular interest or coupon payments as long as the bond has not matured which ensures that their interest income and rate of return are predictable bond issuers however are at a disadvantage since they may be stuck with paying higher interest payments on a bond and thus a higher cost of debt when interest rates have declined as a result noncallable bonds tend to pay investors a lower interest rate than callable bonds but the risk is lower for the investor who is assured of receiving the stated interest rate for the duration of the security special considerationssome callable bonds are noncallable for a set period after they are first issued this time period is called a call protection period for example a trust indenture may stipulate that a 20 year bond may not be called until eight years after its issue date the call protection period ensures that bondholders continue to receive interest payments for at least eight years during which time the bonds remain noncallable after the call protection ends the noncallable security becomes callable and the date that an issuer may redeem its bonds is referred to as a first call date if the issuer redeems its bonds prior to maturity due to more attractive refinancing rates interest payments will cease to be made to bondholders a noncallable bond or preferred share that is redeemed before the maturity date or during the call protection period will incur the payment of a steep penalty 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 a noncancellable insurance policy | a noncancellable insurance policy is a disability insurance policy that can t be canceled have its benefits reduced or its premiums increased by the insurance company during the life of the policy you pay more for this type of coverage but then your coverage and costs are predictable here s how a noncancellable policy compares against other options for disability insurance | |
when you apply for disability insurance the cost depends on your age health and risk of disability from your work this coverage can last many years and possibly your entire career you pick how long you want the coverage to last for example you may want it to last until you turn 65 when applying you decide what ability the insurance company has to adjust your coverage and premium cost | if you choose a noncancellable insurance policy the insurance company agrees that it will not increase your premiums change your benefits or cancel your coverage over the life of the policy it doesn t matter if you develop health problems later or if your disability risk increases as you get older the coverage and costs stay the same throughout your policy 1alternatives to a noncancellable insurance policydisability insurance could also be guaranteed renewable if you buy a policy that is only guaranteed renewable the insurer must let you keep your policy as long as you pay your premiums however your premiums could go up as you get older the insurer is allowed to raise the premiums on a guaranteed renewable policy as long as the increase affects numerous policyholders and not just a particular customer 1 for example the insurer could increase premiums on everyone with your job or who is your age it couldn t increase your premiums because you as an individual get sick or hurt avoid purchasing a conditionally renewable policy also known as optionally renewable this allows the insurance company to raise your premiums or cancel your coverage if the insurer thinks the risk of insuring you has risen these policies put you at risk of losing coverage when you need it most and at a time when you may be unable to qualify for a new policy the insurer can change premiums and other policy conditions annually so this option provides the least beneficial arrangement for the insured noncancellable disability insurance provides the most stability however these policies charge a higher upfront premium than the other options 1noncancellable insurance and income changeanother benefit of a noncancellable disability insurance policy is that if your income decreases your coverage will stay the same if you were laid off from your office job and had to take up other work for less pay for example you would still be able to keep your insurance with a noncancellable policy most people don t have any guarantee that their income will never go down 2 under a noncancellable insurance policy even if someone s income decreases in the future such as when they are totally disabled the company will pay the total benefit from the original contract under a noncancellable policy even if someone changes jobs from a low risk white collar occupation to a riskier one such as a professional race car driver the company cannot decrease the insured s benefits 3 | |
when noncancellable coverage ends | disability insurance usually has an expiration date this applies even to noncancellable and guaranteed renewable policies many policies only cover until you turn 65 or 67 1 at this point the coverage either ends or you would need to pay a much higher premium to maintain disability insurance the noncancellable feature only locks in your premium until you reach this age and then costs can go up by age 65 many people no longer need life or disability insurance those who are retired or near retirement and who have saved their money for many years will no longer need the financial protection that these products provide | |
why should you pair guaranteed renewable and non cancellable insurance | a guaranteed renewable policy allows the insurer to change your future premiums if you choose non cancellable and guaranteed renewable coverage together you are in control of any future changes you don t have to worry about a price increase | |
why might you want a noncancellable disability insurance policy | a noncancellable policy prevents your insurance premiums from going up these policies also offer protection when income changes under a noncancellable policy even if your income declines in the future the company must pay the original disability benefit amount with disability insurance if you take up another job for lesser pay you would still be able to keep your insurance with a noncancellable policy and draw the original benefit as needed | |
why should you be cautious of conditionally renewable policies | conditionally renewable policies allow the insurer to raise your premiums modify benefits or cancel your coverage if the company decides the risk of insuring you has become too high this can put you at risk of losing coverage when you cannot afford to give it up such as right after a serious injury or illness the bottom linenoncancellable insurance gives the policyholder peace of mind that the policy s cost amount of coverage and term are known future premium changes are also typically known when the policy is issued you can rest assured that you won t have to re qualify for the policy at some point in the future when your health might not be as sound and insurance might be harder to get | |
what is the nonce | nonce a portmanteau of number used only once is a number that the bitcoin mining program uses it is included in the block header then that information is hashed if the resulting hexadecimal number adds up to a value of less than or equal to the network s difficulty target the miner s block is added to the blockchain another is opened and the process begins again understanding the noncea bitcoin nonce is a 32 bit or 4 byte number miners use to attempt to generate a valid hash to produce a new block in the bitcoin blockchain the nonce is one of the fields included in the block header which also includes on the bitcoin network participants called miners compete to generate a hash that is less than or equal to the network target hash by repeatedly changing the nonce after each unsuccessful attempt hashing refers to the process of applying a cryptographic hash function to information the cryptographic hash function is a mathematical operation that takes block data and encrypts it by transforming it into a unique value a fixed length output of hexadecimal characters this hash value serves as a cryptographic fingerprint of the block ensuring that the block s contents remain unaltered the nonce is the only variable in the block header that a miner can modify by changing the nonce a miner can change the hash of the block and calculate different possible solutions for example this is the previous paragraph sent through an sha 256 hashing algorithm acd691b23cc47b03addf7329b0467c6190e758ee763d7d648af75b5c5ae73e3aby adding a value of zero the nonce at the end of the paragraph you get a different hexadecimal value if you change that zero to a one you d get this this is how the nonce is used by the bitcoin mining programming the nonce value is increased by one with every attempt until a certain value is reached the first miner to find a valid hash under the network s difficulty target is awarded the block reward their block is broadcast to the network added to the blockchain and the process begins again the target difficulty is a measure of how difficult it is to find a valid nonce it is adjusted periodically to maintain a consistent block generation rate extra nonce and time stampyou ll find in a block explorer that nonces generally only go up into the billions for example the nonce for block 841 948 was 1 614 498 317 block 841 949 had a nonce of 4 218 083 700 a modern mining rig can generate many more hashes than this in less than one second 12additionally the nonce is limited to 32 bits 4 bytes so it can only go up to a little more than 4 29 billion it has to roll over to be useful because hashing is so fast so an addtional method was created after bitcoin asic miners began ripping through the blockchain another number called the extra nonce is randomly generated and used in the coinbase data field this value is added to the coinbase transaction space which changes the merkle root the merkle root is part of the block header so the block header hash changes the extra nonce and the nonce are both manipulated to try to find the solution if a solution cannot be found using either of these the mining program allows the miners to adjust the timestamp the combination of these three values allows the blockchain to keep its target of mining one block about every 10 minutes 3 | |
what is the meaning of the phrase for the nonce | nonce combines the phrase number used once it is used by the bitcoin blockchain to help generate a hashed value when mining a block | |
what is the concept of a nonce | a nonce in blockchain terms is a number used once regarding its use on a blockchain it is a number that increases sequentially in every attempt to generate a hash that meets the network s difficulty criteria | |
what is an example of a nonce | the best example of a nonce is a nonce used to mine a block the nonce used in block 841 954 was 3 983 795 221 4 this doesn t mean it only took the miner 3 98 trillion attempts it likely rolled over several thousand times and was used in combination with the variable extra nonce and timestamp entries as a 32 bit number the nonce can only increase to slightly more than 4 29 billion the bottom linein bitcoin mining miners compete to find a nonce that meets the network s difficulty criteria the information in a block header is sent through a hashing algorithm resulting in a value that must be less than or equal to the network difficulty target in every attempt to meet the target the nonce is increased by one if it exceeds the 32 bit limit it is rolled over and the extra nonce and timestamp are used in combination with it until a miner is successful the comments opinions and analyses expressed on investopedia are for informational purposes online read our warranty and liability disclaimer for more info | |
what is a non conforming mortgage | a non conforming mortgage is a mortgage that does not meet the guidelines of government sponsored enterprises gse such as fannie mae and freddie mac and therefore cannot be sold to them gse guidelines include a maximum loan amount suitable properties down payment requirements and credit requirements among other factors a non conforming mortgage may be contrasted with a conforming mortgage understanding non conforming mortgagesnon conforming mortgages are not bad loans because they are risky or overly complex financial institutions dislike them because they do not conform to gse guidelines and as a result are harder to sell for this reason banks will usually command a higher interest rate on a non conforming loan although private banks initially write most mortgages they often end up in fannie mae s and freddie mac s portfolios these two gses buy loans from banks and package them into mortgage backed securities mbs which sell on the secondary market an mbs is an asset backed security abs secured by a collection of mortgages originating from a regulated and authorized financial institution while there are private financial companies who will buy package and resell an mbs fannie and freddie are the two largest purchasers banks use the money from the sales of mortgages to invest in offering new loans at the current interest rate but fannie mae and freddie mac can t buy just any mortgage product the two gses have federal rules limits to buying loans deemed relatively risk free these loans are conforming mortgages and banks like them precisely because they will readily sell by contrast mortgages fannie mae and freddie mac cannot buy are inherently riskier for banks to write these difficult to sell loans must either stay in the bank s portfolio or be sold to entities specializing in the secondary market for non conforming loans types of non conforming mortgagesthere are various borrower situations and types of loans that fannie and freddie deem as non conforming the most common non conforming mortgage is often called a jumbo mortgage loans written for an amount more substantial than the fannie mae and freddie mac limits in 2024 that limit in most u s counties is 766 550 but in some high cost areas such as new york city or san francisco it can be as high as 1 149 825 mortgages don t have to be jumbo to be non conforming a low down payment can trigger non conforming status too the threshold varies but could be 10 on a conventional mortgage or as little as 3 on a federal housing administration fha loan upfront fees on fannie mae and freddie mac home loans changed in may 2023 fees were increased for homebuyers with higher credit scores such as 740 or higher while they were decreased for homebuyers with lower credit scores such as those below 640 another change your down payment will influence what your fee is the higher your down payment the lower your fees though it will still depend on your credit score fannie mae provides the loan level price adjustments on its website also a factor is the buyer s debt to income ratio dti which typically must not exceed 43 to qualify as a conforming loan a credit score of or above 660 is usually required as well the type of property can also determine if a mortgage is non conforming for example buyers of condos often get tripped up when they learn their dream vacation unit is non conforming because the complex is considered non warrantable that includes condo associations where a single entity such as the developer owns more than 10 of the units other pitfalls include if a majority of the units are not owner occupied if more than 25 of the square footage is commercial or if the homeowners association hoa is in litigation | |
what is noncumulative | the term noncumulative describes a type of preferred stock that does not pay stockholders any unpaid or omitted dividends preferred stock shares are issued with pre established dividend rates which may either be stated as a dollar amount or as a percentage of the par value if the corporation chooses not to pay dividends in a given year investors forfeit the right to claim any of the unpaid dividends in the future understanding noncumulativenoncumulative describes a type of preferred stock that does not entitle investors to reap any missed dividends by contrast cumulative indicates a class of preferred stock that indeed entitles an investor to dividends that were missed the differences between common and preferred stockcompanies either issue common preferred stock or both preferred stock ranks ahead of common shares in getting something back if the company declares bankruptcy and sells off its assets more importantly preferred stocks are issued with stated dividend rates if a company is profitable preferred shareholders collect dividends before common stockholders on the flip side preferred stocks trade more like bonds and thus don t benefit much if the company experiences massive growth common shareholders reap those benefits common shareholders get voting rights while preferred share holders typically don t convertible bonds and preferred stockcorporate bonds may be issued with a conversion feature enabling those bonds to be converted into a specific number of shares of either common stock or preferred stock this conversion option lets bondholders convert a debt investment into stock for example let s assume an investor owns a 1 000 par amount corporate bond that can be converted into 20 shares of preferred stock let s further assume that the bond s market value is 1 050 while the stock is selling at 60 per share if the investor converted their holding into preferred stock they would own securities with a total market value of 1 200 compared with a 1 050 bond if the investor s goal is to earn income he may keep the bond and elect not to convert by contrast an investor who is interested in some growth may opt to convert his bond holdings into equities this investor will want to compare the rates offered on the bond and preferred stock most companies are reluctant to issue noncumulative stocks because shrewd investors are unlikely to buy this class of shares unless they re offered at significant discounts example of how a noncumulative preferred stock worksinvestors who own cumulative preferred shares are entitled to any missed or omitted dividends for example if abc company fails to pay the 1 10 annual dividend to its cumulative preferred stockholders those investors have the right to collect that income at some future date this essentially means cumulative preferred stockholders will receive all of their missed dividends before holders of common stock receive any dividends should the company begin paying dividends again if the preferred shares are noncumulative the shareholders never receive the missed dividend of 1 10 this is why cumulative preferred shares are more valuable than noncumulative preferred shares | |
what are noncurrent assets | noncurrent assets are a company s long term investments for which the full value will not be realized within the accounting year they are typically highly illiquid meaning these assets cannot easily be converted into cash examples of noncurrent assets include investments intellectual property real estate and equipment noncurrent assets appear on a company s balance sheet investopedia ellen lindnerunderstanding noncurrent assetsa company s assets are divided into two categories noncurrent and current assets which appear on a company s balance sheet noncurrent assets also referred to as long term assets are capitalized rather than expensed this means that the company allocates the cost of the asset over the number of years for which the asset will be in use instead of allocating the entire cost to the accounting year in which the asset was purchased depending on the type of asset it may be depreciated amortized or depleted 1the assets section of the balance sheet is segmented according to the type of asset the leading section is current assets which are short term assets that can be converted into cash within one year or one operating cycle current assets include items such as cash accounts receivable and inventory noncurrent assets are always classified on the balance sheet under one of the following headings 1property plant and equipment which may also be called fixed assets encompass land buildings and machinery including vehicles 1investments are classified as noncurrent only if they are not expected to turn into unrestricted cash within the next 12 months of the balance sheet date noncurrent assets fall under three major categories tangible assets intangible assets and natural resources noncurrent assets whether tangible non tangible or natural resources will benefit the company for more than one year they differ from current assets which can be conveniently sold used or exhausted through standard business operations within a year such as inventory and accounts receivable 1examples of noncurrent assetsexamples of noncurrent assets include fixed assets like property and equipment long term investments such as bonds or real estate or investments made in other companies are also common noncurrent assets trademarks client lists and the goodwill acquired in a merger or acquisition are all considered intangible long term assets 1it is not uncommon for capital intensive industries to have a large portion of their asset base composed of noncurrent assets an example of such a company is an oil refinery conversely service businesses may require minimal to no use of fixed assets while a high proportion of noncurrent assets to current assets may indicate poor liquidity this may also simply be a function of the respective company s industry 1other noncurrent assets include the cash surrender value of life insurance a bond sinking fund established for the future repayment of debt is classified as a noncurrent asset some deferred income taxes and unamortized bond issue costs are noncurrent assets as well 1prepaid assets may be classified as noncurrent assets if the future benefit is not to be received within one year for example if rent is prepaid for the next 24 months 12 months is considered a current asset as the benefit will be used within the year the other 12 months are considered noncurrent as the benefit will not be received until the following year 2 | |
what are the different types of noncurrent assets | noncurrent assets fall under three major categories tangible assets intangible assets and natural resources tangible assets are typically physical assets or property owned by a company such as real estate and equipment intangible assets are goods that have no physical presence like patents natural resources are assets that come from the earth such as fossil fuels and timber | |
how are noncurrent assets accounted for | noncurrent assets are capitalized rather than expensed this means that the company allocates the cost of the asset over the number of years for which the asset will be in use instead of allocating the entire cost to the accounting year in which the asset was purchased depending on the type of asset it may be depreciated amortized or depleted they appear on a company s balance sheet under the following categories investment property plant and equipment pp e intangible assets or other assets | |
what is the difference between current and noncurrent assets | current assets are considered short term assets because they generally are convertible to cash within a firm s fiscal year and are the resources that a company needs to run its day to day operations typically they are reported on the balance sheet at their current or market price noncurrent assets can be viewed as investments required for the long term needs of a business for which the full value will not be realized within the accounting year they are typically highly illiquid meaning these assets cannot easily be converted into cash and are capitalized for accounting purposes | |
what are noncurrent liabilities | noncurrent liabilities also called long term liabilities or long term debts are long term financial obligations listed on a company s balance sheet these liabilities have obligations that become due beyond 12 months in the future as opposed to current liabilities which are short term debts with maturity dates within the following 12 month period sydney saporito investopediaunderstanding noncurrent liabilitiesnoncurrent liabilities are compared to cash flow to see if a company will be able to meet its financial obligations in the long term while lenders are primarily concerned with short term liquidity and the amount of current liabilities long term investors use noncurrent liabilities to gauge whether a company is using excessive leverage the more stable a company s cash flows the more debt it can support without increasing its default risk while current liabilities assess liquidity noncurrent liabilities help assess solvency investors and creditors use numerous financial ratios to assess liquidity risk and leverage the debt ratio compares a company s total debt to total assets to provide a general idea of how leveraged it is the lower the percentage the less leverage a company is using and the stronger its equity position the higher the ratio the more financial risk a company is taking on other variants are the long term debt to total assets ratio and the long term debt to capitalization ratio which divides noncurrent liabilities by the amount of capital available analysts also use coverage ratios to assess a company s financial health including the cash flow to debt and the interest coverage ratio the cash flow to debt ratio determines how long it would take a company to repay its debt if it devoted all of its cash flow to debt repayment the interest coverage ratio which is calculated by dividing a company s earnings before interest and taxes ebit by its debt interest payments for the same period gauges whether enough income is being generated to cover interest payments to assess short term liquidity risk analysts look at liquidity ratios like the current ratio the quick ratio and the acid test ratio examples of noncurrent liabilitiesnoncurrent liabilities include debentures long term loans bonds payable deferred tax liabilities long term lease obligations and pension benefit obligations the portion of a bond liability that will not be paid within the upcoming year is classified as a noncurrent liability warranties covering more than a one year period are also recorded as noncurrent liabilities other examples include deferred compensation deferred revenue and certain healthcare liabilities mortgages car payments or other loans for machinery equipment or land are all long term debts except for the payments to be made in the subsequent 12 months which are classified as the current portion of long term debt debt that is due within 12 months may also be reported as a noncurrent liability if there is an intent to refinance this debt with a financial arrangement in the process to restructure the obligation to a noncurrent nature | |
what are noncurrent liabilities compared to | noncurrent liabilities are compared to cash flow to see if a company will be able to meet its long term financial obligations | |
how do investors use noncurrent liabilities | long term investors use noncurrent liabilities to gauge whether a company is using excessive leverage | |
what do noncurrent liabilities include | noncurrent liabilities include the bottom linenoncurrent liabilities are long term financial obligations listed on a company s balance sheet these liabilities also called long term liabilities or long term debts have obligations that become due beyond 12 months in the future | |
what is a nonelective contribution | nonelective contributions are funds employers direct toward their eligible workers employer sponsored retirement plans whether or not the employees make their own contributions just as with matching contributions nonelective contributions are not deducted from employees salaries however the amount of a matching contribution depends on how much money the employee contributes that s not the case with a nonelective contribution with a nonelective contribution the employer contributes to the plan no matter what the employee contributes understanding nonelective contributionsnonelective contributions can vary for example a company might contribute the equivalent of 3 of each employee s salary toward their employer sponsored retirement plan if an employee earns 50 000 per year for example the employer would be contributing 1 500 per year no matter what the employee contributes employers are free to change the contribution rates as they see fit for their organizations nonelective contributions cannot exceed the annual contribution limits set by the internal revenue service irs the total annual amount that can be contributed to a defined contribution plan such as a 401 k in 2024 is 69 000 if you re under 50 years old if you re 50 or older you can contribute an additional 7 500 in catch up contributions bringing the total to 76 500 for 2024 1advantages of nonelective contributionsnonelective contributions come with advantages for the employer they are tax deductible and they can encourage more employees to participate in the company s retirement plan the decision to offer fully vested nonelective contributions can also provide retirement plans with safe harbor protection which exempts plans from government mandated nondiscrimination testing the irs administers these tests to make sure plans are designed to benefit all employees instead of favoring highly compensated ones making nonelective contributions can help employers meet this goal while also remaining compliant with government rules to be granted safe harbor by the irs employers nonelective contributions must be at least 3 before the end of the plan year a company can decide to elect safe harbor provisions like making nonelective contributions for the following year they can also decide to elect safe harbor provisions for the year generally 30 days before the end of the plan year employers make nonelective contributions to employees accounts whether or not employees make contributions which benefits the employees the employees don t have to do anything to receive this benefit disadvantages of nonelective contributionsoffering nonelective contributions could come with additional administrative costs and it may not be feasible for all employers making nonelective contributions also means flowing money into default funds for employees who don t manually enroll in a plan and select a fund or make contributions as fiduciary plan sponsors employers would need to take due diligence in selecting these funds to make this simpler the pension protection act of 2006 outlined its qualified default investment alternatives qdias and how employers can enroll workers in these funds while gaining safe harbor protection qdias are defined as target date funds tdfs or lifecycle funds balanced funds and professionally managed accounts however a tdf should not be viewed as a definitive option that would meet the needs of all employees employers still need to take a thorough look at their workforce to determine appropriate plan menu funds and qdias to remain compliant with government regulations and to help employees secure a comfortable retirement with a nonelective contribution an employee may receive less money from an employer compared to a matching contribution which varies but can be 5 or more | |
what is a nonelective safe harbor contribution | a nonelective contribution that satisfies safe harbor rules amounts to at least 3 of an employee s compensation the employer must make this contribution whether or not the employee contributes anything | |
what is a corrective employer nonelective eontribution | a corrective employer nonelective contribution according to the irs is made by the employer to replace the lost opportunity to a participant who wasn t permitted to make elective deferrals this contribution must be fully vested 2 | |
what are the 2024 401 k limits | the 2024 contribution limit for 401 k s is 23 000 if you re under 50 years old if you re 50 or older you can contribute an additional 7 500 bringing the maximum up to 30 500 3the bottom lineemployers make nonelective contributions no matter how much employees contribute to the retirement plan this type of contribution which must be fully vested has tax and compliance advantages however it s not necessarily right for every employer | |
what is nonfeasance | nonfeasance is a legal concept that refers to the willful failure to execute or perform an act or duty required by one s position office or law whereby that neglect results in harm or damage to a person or property the perpetrator can be found liable and subject to prosecution nonfeasance differs from malfeasance which is a willfully harmful act or misfeasance which is performing one s duty incorrectly understanding nonfeasancewhile nonfeasance the absence of action to help prevent harm or damage was not originally subject to the penalty of law legal reforms evolved to make it possible for courts to use the term to describe inaction which assigns liability in some jurisdictions nonfeasance carries stiff criminal penalties at a minimum it can lead to a notice of termination in order for intentional inaction to be considered nonfeasance it must meet three criteria they are for example if a daycare provider is employed to supervise children and fails to prevent a child from climbing out on a window ledge from which the child falls the daycare provider could be found liable for nonfeasance because it was their contracted duty to watch and protect the child from harm and they failed to take action when necessary financial nonfeasance | |
when a corporate director real estate agent financial advisor or another individual with a fiduciary duty breaches that duty through willful and intentional inaction nonfeasance can be said to have taken place for example when a real estate agent accepts an earnest money check from a client but fails to deposit that check causing the deal to fall through the realtor might be held liable for nonfeasance and not a more serious offense as long as the funds weren t misused and the agent had no inappropriate motive | similarly a corporate director might be held liable for nonfeasance if they fail to maintain an active role in the business and monitor corporate affairs such that their inaction causes harm to the business related legal termsnonfeasance is different from malfeasance which refers to the willful intentional undertaking of an illegal or wrongful act that harms another party it also differs from misfeasance which is the willful intentional performance of an inappropriate or incorrect action or the willful giving of incorrect or inappropriate advice all three terms fall under the umbrella of misconduct in public office | |
what is a nonfinancial asset | a nonfinancial asset is an asset that derives its value from its physical traits examples include real estate and vehicles it also includes all intellectual property such as patents and trademarks the classification of possessions as nonfinancial assets is important to businesses as these items appear on a company s balance sheet and determine a multitude of factors such as a company s market value and debt profile understanding a nonfinancial asseton a company s balance sheet nonfinancial assets stand in contrast to financial assets financial assets are based on a contractual claim rather than a physical net worth financial assets include stocks bonds and bank deposits and are generally easier to sell than nonfinancial assets the value of a financial asset can be based on the value of an underlying nonfinancial asset for example the value of a futures contract is based on the value of the commodities controlled by that contract commodities are tangible objects with inherent value such as coffee or soybeans while futures contracts which do not have an inherent physical value are an example of a financial asset nonfinancial assets vs financial assetsnonfinancial and financial assets differ based on how the assets are bought and sold many financial assets such as stocks and bonds will trade on exchanges and can be bought and sold on any business day that the exchange is open it is easy to get the current market price to buy or sell these assets as long as the market is liquid there will be a buyer for every seller and vice versa on the other hand a nonfinancial asset such as a piece of equipment or a vehicle can be challenging to sell because there is not an active market of buyers and sellers the pricing of the nonfinancial item may be foggy as there is no market standard instead many nonfinancial assets are sold when the seller finds a potential buyer and negotiates a sale price the time it takes to find a buyer make the sale and distribute the physical asset make nonfinancial assets illiquid nonfinancial assets as collateralboth financial and nonfinancial assets may be used as collateral to back secured debt standing in contrast to unsecured debt which is only backed by the borrower s ability to pay one factor that makes a form of collateral more attractive to the lender is the ability to quickly sell the asset if the borrower fails to make principal or interest payments a financial asset that trades on an exchange like a stock or bond is easier to sell than a nonfinancial asset so a financial asset is more attractive to a lender as collateral assume for example that xyz manufacturing needs a 100 000 line of credit to operate the business and they put up 60 000 in investment securities and a 40 000 piece of equipment as collateral for the loan if xyz does not make principal and interest payments on the loan and defaults the lender can sell the 60 000 in financial assets quickly to cover the loss finding a buyer for the equipment however may take longer so the nonfinancial asset is less attractive as collateral | |
what is a nonforfeiture clause | a nonforfeiture clause is an insurance policy clause stipulating that an insured party can receive full or partial benefits or a partial refund of premiums after a lapse due to nonpayment standard life insurance and long term care insurance may have nonforfeiture clauses the clause may involve returning some portion of the total premiums paid the cash surrender value of the policy or a reduced benefit based upon premiums paid before the policy lapses | |
when the owner of a whole life insurance policy surrenders the policy they have several nonforfeiture options the insurance company guarantees a minimum cash value for the insurance policy after a specific period typically three years from when the policy starts 1 | for traditional whole life policies the owner decides which of four ways see below they would like to access the policy s cash value there are no guarantees for the minimum amount of life insurance available in variable and universal life policies which allow for variable investing also the amount of reduced paid up or extended term insurance may decrease if a policy s sub account performance is poor or credited interest rates are low life insurance policyholders can select one of four nonforfeiture benefit options cash surrender value extended term insurance loan value and paid up insurance in permanent life insurance policies if you fail to pay the premiums in the grace period you won t lose your life insurance instead you can access your accumulated cash value with the following options if the policyholder does not make a selection the terms of the policy will generally stipulate which option would go into effect if the policy lapses or is surrendered payout options under a nonforfeiture clauseafter surrendering a whole life insurance policy the death benefit on that policy no longer exists before issuing payment to the policy owner outstanding loan amounts are satisfied with the cash value some companies offer an annuity option in the nonforfeiture clause the remaining cash value may be used to purchase an annuity free of commissions or expenses annuities pay regular payments as outlined in the contract with the cash surrender value option the policy owner terminates the policy and receives the remaining cash value within six months cash surrender value applies to the savings element of whole life insurance policies payable before death however during the early years of a whole life insurance policy the savings portion brings little return compared to the premiums paid 2cash surrender value is the accumulated portion of a permanent life insurance policy s cash value that is available to the policyholder upon surrender of the policy depending on the age of the policy the cash surrender value could be less than the actual cash value in the early years of a policy life insurance companies can deduct fees upon cash surrender with the paid up policy option you can use your cash surrender value to buy a paid up version of the same type of life insurance policy so you would no longer have to make premium payments however surrendering a portion of the cash value reduces the death benefit the policy would retain a cash value component but it would grow at a reduced rate choosing the nonforfeiture extended term option allows the policy owner to use the cash value to purchase a term insurance policy with a death benefit equal to that of the original whole life policy the policy is calculated from the insured s attained age the term policy ends after a fixed number of years as detailed in the policy s nonforfeiture table for some companies this option may be automatic when surrendering a whole life insurance policy extended term insurance allows a policyholder to stop paying the premiums but not forfeit the equity of their policy the amount of cash value you will have built in your policy will be reduced by the amount of any loans against your life insurance 3extended term insurance is often the default nonforfeiture option with extended term insurance the face amount of the policy stays the same but it is flipped to an extended term insurance policy meanwhile the equity you built is used to purchase a term policy that equals the number of years you paid premiums for example if you purchased a policy when you were 20 years old and you paid until age 55 you would receive a term policy that is less than 35 years or if you were 35 when you purchased your policy and you paid until you were 45 you would receive a term policy less than 10 years unlike conventional loans policy loans don t necessarily need to be paid back however any money you take out will be deducted from the death benefit that goes to your beneficiaries just like with a conventional loan you ll be charged interest that could range from 5 to 9 on the loan unpaid interest will be added to your loan amount and will be subject to compounding 4 | |
why do nonforfeiture clauses exist | nonforfeiture clauses offer protection in the event that a policyholder stops paying their premium sometimes a policy expires after a so called grace period if cash has accumulated in the policy state law forbids companies from keeping it and canceling the policy | |
what is an extended term option | with the extended term option you can choose to use the cash value in a whole life insurance policy to term insurance allowing you to stop paying premiums the death benefit would be equal to the benefit in the original whole life insurance policy | |
what is cash surrender value | cash surrender value applies to the savings element of whole life insurance policies this value is payable before death overall it s the accumulated portion of a permanent life insurance policy s cash value that is available to the policyholder upon surrender of the policy depending on the age of the policy the cash surrender value could be less than the actual cash value the bottom lineunderstanding your choices with a nonforfeiture clause can help you determine which option is best for your financial situation and goals whether it s an extended term policy cash surrender value or another option consider consulting a financial advisor who can guide you on choosing an option that will best fit your circumstances | |
what is a noninterest expense | a noninterest expense is an operating expense of a bank or financial institution that is classified separately from interest expense and provision for credit losses examples of noninterest expenses include understanding noninterest expensesa bank has two main buckets of expenses interest and noninterest interest expenses are incurred from deposits short term and long term loans and trading account liabilities a noninterest expense is an expense other than interest payments on deposits and bonds these expenses are often operational expenses incurred in the daily running of the bank a noninterest expense in the case of a bank for a financial institution represents an expense that is not directly associated with attracting and keeping a depositor s funds noninterest expenses are sizeable and a bank must manage them carefully to maximize profits otherwise excessive noninterest expenses will directly impact the bottom line noninterest expenses represent the operating expenses of the bank the majority of which are personnel costs occupancy and it costs are also material cost components as are professional fees particularly for legal services to negotiate settlements for past ongoing and future fraudulent activities affecting the bank in aggregate the noninterest expense is considered a bank overhead and is used to calculate the overhead ratio of the bank for trend analysis and cross comparisons with peers noninterest expense divided by average assets is the overhead ratio when an overhead ratio becomes unacceptably high for a prolonged period a bank will typically address personnel costs first because human capital costs account for most of the noninterest expense shareholders in recent years have paid more attention to executive compensation to ensure that managers are not receiving unwarranted pay shareholders generally favor competitive compensation but want to see that overall personnel costs are within a reasonable range noninterest expenses by bank typenoninterest expenses are typically higher for investment banks than commercial banks but this can be hidden behind the numbers it depends on the number of employees and their compensation for example investment banks rely more on trading asset management and capital markets advisory services which all require higher employee compensation levels and fewer employees on the other hand lending activities by a commercial bank do not call for wall street compensation levels and the market the bank serves calls for more employees wells fargo has about 247 000 employees while morgan stanley has about 60 000 12 in 2021 morgan stanley s noninterest expenses composed 66 of revenues compensation alone made up approximately 38 of revenues 3for wells fargo total noninterest expenses and employee costs accounted for 69 and 45 of revenues respectively 4 personnel costs as part of revenues are within a few percent of each other but this is likely due to the difference in employee counts and compensation levels | |
what is the largest noninterest expense for a bank | it might vary by bank or institution but personnel costs generally make up the most significant portion of noninterest expenses for instance wells fargo s personnel costs for 2021 were 45 of its revenues 35 5 billion in noninterest expenses out of 78 5 billion in revenues 4 | |
what is noninterest income for banks | noninterest income is income generated by sources that do not create interest for example this could be fees commissions investment gains and other operational income | |
how do you calculate noninterest income | noninterest income is generally calculated per instrument or service for instance if a bank loaned an amount to a customer with an origination fee of 500 and service charges of 100 the noninterest income for the loan is 600 while the interest income from the loan is not counted the bottom linenoninterest expenses are the portion of a bank s expenses that are not funds paid to customers or other banks in the form of interest for example purchasing equipment contracting professional services wages and salaries and advertising are all noninterest expenses banks need to distinguish between interest and noninterest expenses because they are fixed operating costs whereas interest expenses are not creating transparency by separating the two allows interesting parties to understand a bank s expenses better and lets it manage its finances to maximize profits | |
nonlinear regression is a form of regression analysis in which data is fit to a model and then expressed as a mathematical function simple linear regression relates two variables x and y with a straight line y mx b while nonlinear regression relates the two variables in a nonlinear curved relationship | the goal of the model is to make the sum of the squares as small as possible the sum of squares is a measure that tracks how far the y observations vary from the nonlinear curved function that is used to predict y it is computed by first finding the difference between the fitted nonlinear function and every y point of data in the set then each of those differences is squared lastly all of the squared figures are added together the smaller the sum of these squared figures the better the function fits the data points in the set nonlinear regression uses logarithmic functions trigonometric functions exponential functions power functions lorenz curves gaussian functions and other fitting methods nonlinear regression modeling is similar to linear regression modeling in that both seek to track a particular response from a set of variables graphically nonlinear models are more complicated than linear models to develop because the function is created through a series of approximations iterations that may stem from trial and error mathematicians use several established methods such as the gauss newton method and the levenberg marquardt method often regression models that appear nonlinear upon first glance are actually linear the curve estimation procedure can be used to identify the nature of the functional relationships at play in your data so you can choose the correct regression model whether linear or nonlinear linear regression models while they typically form a straight line can also form curves depending on the form of the linear regression equation likewise it s possible to use algebra to transform a nonlinear equation so that it mimics a linear equation such a nonlinear equation is referred to as intrinsically linear linear regression relates two variables with a straight line nonlinear regression relates the variables using a curve example of nonlinear regressionone example of how nonlinear regression can be used is to predict population growth over time 1 a scatterplot of changing population data over time shows that there seems to be a relationship between time and population growth but that it is a nonlinear relationship requiring the use of a nonlinear regression model a logistic population growth model can provide estimates of the population for periods that were not measured and predictions of future population growth independent and dependent variables used in nonlinear regression should be quantitative categorical variables like region of residence or religion should be coded as binary variables or other types of quantitative variables in order to obtain accurate results from the nonlinear regression model you should make sure the function you specify describes the relationship between the independent and dependent variables accurately good starting values are also necessary poor starting values may result in a model that fails to converge or a solution that is only optimal locally rather than globally even if you ve specified the right functional form for the model | |
what is nonlinearity | nonlinearity is a statistical term used to describe a situation where there is not a straight line or direct relationship between an independent variable and a dependent variable in a nonlinear relationship changes in the output do not change in direct proportion to changes in any of the inputs a linear relationship creates a straight line when plotted on a graph a nonlinear relationship does not create a straight line but instead creates a curve some investments such as options exhibit high levels of nonlinearity and require investors to pay special attention to the numerous variables that could impact their return on investment roi understanding nonlinearitynonlinearity is a common issue when examining cause and effect relationships these relationships require complex modeling and hypothesis testing to fully explain nonlinear events nonlinearity without explanation can seem to lead to random erratic outcomes in investing we can see examples of nonlinearity in certain investment classes options for example are nonlinear derivatives because changes in the input variables associated with options do not result in proportional changes in output investments with high nonlinearity may appear more chaotic or unpredictable investors who include nonlinear derivatives in their portfolio need to use different pricing simulations to estimate the risk profile of their investments than they would for linear assets linear investment assets include shares of stock and futures contracts for instance options traders will use greeks such as the delta gamma and theta values for their investments these assessments can help investors manage their risk and help time the entry and exit points of their trades nonlinearity vs linearityin contrast to a nonlinear relationship a linear relationship refers to a direct correlation between an independent variable and a dependent variable a change affecting an independent variable will produce a corresponding change in the dependent variable when plotted on a graph this linear relationship between independent and dependent variables will create a straight line for example suppose management at a shoe factory decides to increase its workforce the independent variable by 10 if the company s workforce and production the dependent variable have a linear relationship then management should expect to see a corresponding 10 increase in the production of shoes nonlinearity and investingthe multiple factors that can impact an option investment s return make options an example of an asset class with high nonlinearity when trading options investors have many variables to consider including for investments with a high degree of linearity investors generally use a standard value at risk technique to estimate the potential loss the investment might incur however using a value at risk technique is generally not sufficient for options because of their higher degree of nonlinearity instead options investors might use a more advanced technique such as a monte carlo simulation this models for a wide variety of variables with different parameters to assess possible investment returns and risks special considerationsnonlinear regression is a common form of regression analysis used in the financial industry to model nonlinear data against independent variables in an attempt to explain their relationship although the model s parameters are nonlinear nonlinear regression can fit data using methods of successive approximations to offer explanatory outputs nonlinear regression models are more complicated to create than linear models because they often take considerable trial and error to define the outputs however they can be valuable tools for investors who are attempting to determine the potential risks associated with their investments based on different variables | |
what is a nonlinear example | a nonlinear relationship is anything that can t be represented by an equation in the form f x ax b an example of an equation for a nonlinear relationship is f x x2 | |
how can you tell if a relationship is linear or nonlinear | a linear relationship has a constant rate of change which means it can be plotted with a straight line as the dependent variable changes in response to the independent variable a nonlinear relationship doesn t have a constant rate of change when a nonlinear relationship is plotted it will form a shape other than a straight line | |
what are the greeks in investing | the greeks are variables that are used by investors and analysts to assess risk in the options market the name comes from the greek letter that is used to represent each variable such as delta gamma theta and vega these are the first partial derivatives of an options pricing model each greek tells investors something about how that option moves or the risk associated with it the bottom linewhile linear relationships between variables can be plotted with a straight line nonlinear relationships are not predictable from a straight line in a nonlinear relationship changes in the dependent variable are caused by a variety of inputs so the value doesn t change in direct proportion to the independent variable some investment classes such as options are highly nonlinear which can make it more difficult for investors to predict their losses or gains in response to certain market changes to understand these investments investors will use more complex modeling techniques to estimate potential gains or losses over time | |
what are nonmonetary assets | generally speaking nonmonetary assets are assets that appear on the balance sheet but are not readily or easily convertible into cash or cash equivalents nonmonetary assets are items a company holds for which it is not possible to precisely determine a dollar value these are assets whose dollar value may fluctuate substantially over time a company may need to change its nonmonetary assets as the assets wear out or become obsolete examples of these sorts of assets include factory equipment and vehicles understanding nonmonetary assetsnonmonetary assets are distinct from monetary assets monetary assets include cash and cash equivalents such as cash on hand bank deposits investment accounts accounts receivable ar and notes receivable all of which can readily be converted into a fixed or precisely determinable amount of money nonmonetary assets on the other hand do not have a fixed rate at which the company can convert them into cash typical nonmonetary assets of a company include both tangible assets and intangible assets tangible assets have a physical form and are the most basic types of assets listed on a company s balance sheet examples of tangible assets are a company s inventory and its property plant and equipment pp e in contrast intangible assets are not physical in nature companies can acquire intangible assets or they can create them examples include copyrights design patents trademarks brand recognition and goodwill special considerationsit is not always clear as to whether an asset is a monetary or nonmonetary asset the deciding factor in such instances is whether the asset s value represents an amount that can be converted into a determined cash or a cash equivalent amount within a very short span of time if it can be converted into cash easily the asset is considered a monetary asset liquid assets are assets that can easily be converted into cash in a short amount of time if it cannot be readily converted to cash or a cash equivalent in the short term then it is considered a nonmonetary asset nonmonetary assets vs nonmonetary liabilitiesin addition to nonmonetary assets companies also commonly have nonmonetary liabilities nonmonetary liabilities include obligations that cannot be met in the form of cash payments such as a warranty service on goods a company sells it is possible to determine the dollar value of such a liability but the liability represents a service obligation rather than a financial obligation such as interest payments on a loan differences between monetary and nonmonetary assetsdollar values are the accepted measure for quantifying a company s assets and liabilities as they are presented in a company s financial statements however nonmonetary assets and liabilities that cannot be readily converted to cash are also included in a company s balance sheet common examples of nonmonetary assets are the real estate a company owns where its offices or a manufacturing facility are located and intangibles such as proprietary technology or other intellectual property these items are undeniably assets but their current value is not always apparent as it changes over time in accordance with economic and market conditions and forces for example marketplace competition changes the dollar value of a company s inventory as the company adjusts its market price in response to price competition from other companies or to the demand for the company s products general economic forces such as inflation or deflation also impact the value of nonmonetary assets such as inventory or manufacturing facilities most nonmonetary assets are recorded on the balance sheet at the amount the company paid for them or for longer term assets what the company paid less any accumulated depreciation this means that even when market values fluctuate it does not affect the values in the financial statements the only time the values would be affected is if the market values decline below what was originally paid in this case the company lowers the value of the asset by writing off the asset a company can use its monetary assets to fund capital improvements or to pay for day to day operational expenses a company will use its nonmonetary assets to help generate revenue for example a company can use its factory and equipment to produce the products it will sell to its customers | |
what is the nonparametric method | the nonparametric method refers to a type of statistic that does not make any assumptions about the characteristics of the sample its parameters or whether the observed data is quantitative or qualitative nonparametric statistics can include certain descriptive statistics statistical models inference and statistical tests the model structure of nonparametric methods is not specified a priori but is instead determined from data the term nonparametric is not meant to imply that such models completely lack parameters but rather that the number and nature of the parameters are flexible and not fixed in advance a histogram is an example of a nonparametric estimate of a probability distribution in contrast well known statistical methods such as anova pearson s correlation t test and others do make assumptions about the data being analyzed one of the most common parametric assumptions is that population data have a normal distribution | |
how the nonparametric method works | parametric and nonparametric methods are often used on different types of data parametric statistics generally require interval or ratio data an example of this type of data is age income height and weight in which the values are continuous and the intervals between values have meaning in contrast nonparametric statistics are typically used on data that nominal or ordinal nominal variables are variables for which the values have not quantitative value common nominal variables in social science research for example include sex whose possible values are discrete categories male and female other common nominal variables in social science research are race marital status educational level and employment status employed versus unemployed ordinal variables are those in which the value suggests some order an example of an ordinal variable would be if a survey respondent asked on a scale of 1 to 5 with 1 being extremely dissatisfied and 5 being extremely satisfied how would you rate your experience with the cable company parametric statistics may too be applied to populations with other known distribution types however nonparametric statistics do not require that the population data meet the assumptions required for parametric statistics nonparametric statistics therefore fall into a category of statistics sometimes referred to as distribution free often nonparametric methods will be used when the population data has an unknown distribution or when the sample size is small special considerationsalthough nonparametric statistics have the advantage of having to meet few assumptions they are less powerful than parametric statistics this means that they may not show a relationship between two variables when in fact one exists nonparametric statistics have gained appreciation due to their ease of use as the need for parameters is relieved the data becomes more applicable to a larger variety of tests this type of statistics can be used without the mean sample size standard deviation or the estimation of any other related parameters when none of that information is available since nonparametric statistics makes fewer assumptions about the sample data its application is wider in scope than parametric statistics in cases where parametric testing is more appropriate nonparametric methods will be less efficient this is because nonparametric statistics discard some information that is available in the data unlike parametric statistics common nonparametric tests include chi square wilcoxon rank sum test kruskal wallis test and spearman s rank order correlation examples of the nonparametric methodconsider a financial analyst who wishes to estimate the value at risk var of an investment the analyst gathers earnings data from hundreds of similar investments over a similar time horizon rather than assume that the earnings follow a normal distribution she uses the histogram to estimate the distribution nonparametrically the 5th percentile of this histogram then provides the analyst with a nonparametric estimate of var for a second example consider a different researcher who wants to know whether average hours of sleep are linked to how frequently one falls ill because many people get sick rarely if at all and occasional others get sick far more often than most others the distribution of illness frequency is clearly non normal being right skewed and outlier prone thus rather than use a method that assumes a normal distribution for illness frequency as is done in classical regression analysis for example the researcher decides to use a nonparametric method such as quantile regression analysis | |
what are nonparametric statistics | nonparametric statistics refer to a statistical method in which the data are not assumed to come from prescribed models that are determined by a small number of parameters examples of such models include the normal distribution model and the linear regression model nonparametric statistics sometimes use data that is ordinal meaning it relies not on numbers but on a ranking or order of sorts for example a survey conveying consumer preferences ranging from like to dislike would be considered ordinal data nonparametric statistics include nonparametric descriptive statistics statistical models inference and statistical tests the model structure of nonparametric models is not specified a priori but is instead determined from data the term nonparametric is not meant to imply that such models completely lack parameters but rather that the number and nature of the parameters are flexible and not fixed in advance a histogram is an example of a nonparametric estimate of a probability distribution understanding nonparametric statisticsin statistics parametric statistics include parameters such as the mean standard deviation pearson correlation variance etc this form of statistics uses the observed data to estimate the parameters of the distribution under parametric statistics data are often assumed to come from a normal distribution with unknown parameters population mean and 2 population variance which are then estimated using the sample mean and sample variance nonparametric statistics make no assumption about the sample size or whether the observed data is quantitative nonparametric statistics do not assume that data is drawn from a normal distribution instead the shape of the distribution is estimated under this form of statistical measurement while there are many situations in which a normal distribution can be assumed there are also some scenarios in which the true data generating process is far from normally distributed examples of nonparametric statisticsin the first example consider a financial analyst who wishes to estimate the value at risk var of an investment the analyst gathers earnings data from hundreds of similar investments over a similar time horizon rather than assume that the earnings follow a normal distribution they use the histogram to estimate the distribution nonparametrically the 5th percentile of this histogram then provides the analyst with a nonparametric estimate of var for a second example consider a researcher who wants to know whether average hours of sleep are linked to how frequently one falls ill because many people get sick rarely if at all and occasional others get sick far more often than most others the distribution of illness frequency is clearly non normal being right skewed and outlier prone thus rather than use a method that assumes a normal distribution for illness frequency as is done in classical regression analysis for example the researcher decides to use a nonparametric method such as quantile regression analysis special considerationsnonparametric statistics have gained appreciation due to their ease of use as the need for parameters is relieved the data becomes more applicable to a larger variety of tests this type of statistics can be used without the mean sample size standard deviation or the estimation of any other related parameters when none of that information is available since nonparametric statistics make fewer assumptions about the sample data their application is wider in scope than parametric statistics in cases where parametric testing is more appropriate nonparametric methods will be less efficient this is because nonparametric statistics discard some information that is available in the data unlike parametric statistics | |
what do nonparametric statistics include | nonparametric statistics include nonparametric descriptive statistics statistical models inference and statistical tests the model structure of nonparametric models is determined from data | |
how do nonparametric statistics work | nonparametric statistics do not assume the sample size whether the observed data is quantitative or whether the data is drawn from a normal distribution instead the shape of the distribution is estimated under this form of statistical measurement |
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