What Is the Equity Premium Puzzle (EPP)? The equity premium puzzle (EPP) refers to the excessively high historical outperformance of stocks over Treasury bills, which is difficult to explain. The equity risk premium, which is usually defined as equity returns minus the return of Treasury bills, is estimated to be between 5% and 8% in
EPS Example Company Net Income Preferred Dividends Weighted Common Shares Basic EPS Ford $7.6B $0 3.98B $7.6/3.98 = $1.91 Bank of America $18.23B $1.61B 10.2B $18.23-$1.61/10.2 = $1.63 NVIDIA $1.67B $0 0.541B $1.67/0.541 = $3.09 How Is EPS Used? Earnings per share is one of the most important metrics employed when determining a firm’s profitability
What Is the Equal Employment Opportunity Commission (EEOC)? The U.S. Equal Employment Opportunity Commission (EEOC) is the agency responsible for enforcing federal laws regarding discrimination or harassment against a job applicant or an employee in the United States. The EEOC was formed by Congress to enforce Title VII of the Civil Rights Act of 1964
What Are Equalization Payments? An equalization payment is a transfer payment made to a state, province, or individual from the federal government for the purpose of offsetting monetary imbalances between different parts of the country or between individuals. Equalization payments represent wealth or income redistribution between regions, jurisdictions, or administrative districts. Equalization payments may help
What Is an Equalization Reserve? An equalization reserve is a long-term reserve that an insurance company keeps to prevent cash-flow depletion in case of significant unforeseen catastrophes. How Equalization Reserves Work A disastrous event—such as a flood, earthquake or fire—can result in the severe depletion of an insurance company’s equalization reserves. These reserves can be
What Is the Equation of Exchange? The equation of exchange is an economic identity that shows the relationship between money supply, the velocity of money, the price level, and an index of expenditures. English classical economist John Stuart Mill derived the equation of exchange, based on earlier ideas of David Hume. It says that the
What Is Equilibrium? Equilibrium is the state in which market supply and demand balance each other, and as a result prices become stable. Generally, an over-supply of goods or services causes prices to go down, which results in higher demand—while an under-supply or shortage causes prices to go up resulting in less demand. The balancing effect of supply
What Is Equity? Equity, typically referred to as shareholders’ equity (or owners’ equity for privately held companies), represents the amount of money that would be returned to a company’s shareholders if all of the assets were liquidated and all of the company’s debt was paid off in the case of liquidation. In the case of acquisition, it
What Is an Equity Derivative? An equity derivative is a financial instrument whose value is based on the equity movements of the underlying asset. For example, a stock option is an equity derivative, because its value is based on the price movements of the underlying stock. Investors can use equity derivatives to hedge the risk associated with taking long or
What Is Equity Accounting? Equity accounting is an accounting process for recording investments in associated companies or entities. Companies sometimes have ownership interests in other companies. Typically, equity accounting–also called the equity method–is applied when an investor or holding entity owns 20–50% of the voting stock of the associate company. The equity method of accounting
