What Is an Equity-Efficiency Tradeoff? An equity-efficiency tradeoff is when there is some kind of conflict between maximizing economic efficiency and maximizing the equity (or fairness) of society in some way. When and if such a tradeoff exists, economists or public policymakers may decide to sacrifice some amount of economic efficiency for the sake of
What Is Equity Financing? Equity financing is the process of raising capital through the sale of shares. Companies raise money because they might have a short-term need to pay bills or need funds for a long-term project that promotes growth. By selling shares, a business effectively sells ownership in its company in return for cash.
What is Equity-Indexed Universal Life Insurance? Equity-indexed universal life insurance is a type of permanent life insurance policy that ties its accumulation to a stock market index. It is more complex than other forms of permanent life insurance policies and potential investors may want guidance on how this policy works before committing to it. Equity-indexed
An equity-linked security is a debt instrument with variable payments linked to an equity market benchmark. These securities are an alternative type of fixed-income investment—structured products most often created as bonds. Equity-linked securities are usually used in private market corporate capital financings and are offered to investors to raise corporate capital. As such, they are not traded
What Is an Equity Market? An equity market is a market in which shares of companies are issued and traded, either through exchanges or over-the-counter markets. Also known as the stock market, it is one of the most vital areas of a market economy. It gives companies access to capital to grow their business, and
What Is Equity Market Neutral? Equity market neutral (EMN) is a trading strategy that seeks to hedge against directional market exposure by taking offsetting long and short positions. Instead, EMN performance is measured by the spread between the fund’s long and short exposures or against a risk-free benchmark rate of return. Key Takeaways An equity
What Is the Equity Method? The equity method is an accounting technique used by a company to record the profits earned through its investment in another company. With the equity method of accounting, the investor company reports the revenue earned by the other company on its income statement, in an amount proportional to the percentage
What Is an Engagement Letter? An engagement letter is a written agreement that describes the business relationship to be entered into by a client and a company. The letter details the scope of the agreement, its terms, and costs. The purpose of an engagement letter is to set expectations on both sides of the agreement. Key
What Is Engel’s Law? Engel’s Law is an economic theory put forth in 1857 by Ernst Engel, a German statistician. It states that the percentage of income allocated for food purchases decreases as a household’s income rises, while the percentage spent on other things (such as education and recreation) increases. Key Takeaways Engel’s Law is
What Is Enhanced Indexing? Enhanced indexing is a portfolio management approach that attempts to amplify the returns of an underlying portfolio or index and outperform strict indexing. Enhanced indexing also attempts to minimize tracking error. This type of investing is considered a hybrid between active and passive management; it combines elements of both approaches. Enhanced indexed
