Definition of Time premium

Time premium

Also called time value, the amount by which the option price exceeds its intrinsic value. The
value of an option beyond its current exercise value representing the optionholder's control until expiration,
the risk of the underlying asset, and the riskless return.

control premium

the additional value inherent in the control interest as contrasted to a minority interest, which reflects its power of control

Break-even time

Related: premium payback period.

Cash flow time-line

Line depicting the operating activities and cash flows for a firm over a particular period.

Conversion premium

The percentage by which the conversion price in a convertible security exceeds the
prevailing common stock price at the time the convertible security is issued.

Default premium

A differential in promised yield that compensates the investor for the risk inherent in
purchasing a corporate bond that entails some risk of default.

Forward premium

A currency trades at a forward premium when its forward price is higher than its spot price.

Just-in-time inventory systems

Systems that schedule materials/inventory to arrive exactly as they are
needed in the production process.

Liquidity premium

Forward rate minus expected future short-term interest rate.

Market timer

A money manager who assumes he or she can forecast when the stock market will go up and down.

Option premium

The option price.

Premium

1) Amount paid for a bond above the par value.
2) The price of an option contract; also, in futures
trading, the amount the futures price exceeds the price of the spot commodity. Related: inverted market premium payback period. Also called break-even time, the time it takes to recover the premium per share of a
convertible security.

Premium bond

A bond that is selling for more than its par value.

Real time

A real time stock or bond quote is one that states a security's most recent offer to sell or bid (buy).
A delayed quote shows the same bid and ask prices 15 minutes and sometimes 20 minutes after a trade takes place.

Risk premium

The reward for holding the risky market portfolio rather than the risk-free asset. The spread
between Treasury and non-Treasury bonds of comparable maturity.

Risk premium approach

The most common approach for tactical asset allocation to determine the relative
valuation of asset classes based on expected returns.

Single-premium deferred annuity

An insurance policy bought by the sponsor of a pension plan for a single
premium. In return, the insurance company agrees to make lifelong payments to the employee (the
policyholder) when that employee retires.

Tender offer premium

The premium offered above the current market price in a tender offer.

Term premiums

Excess of the yields to maturity on long-term bonds over those of short-term bonds.

Time decay

Related: theta.

Time deposit

Interest-bearing deposit at a savings institution that has a specific maturity.
Related: certificate of deposit.

Time draft

Demand for payment at a stated future date.

Time until expiration

The time remaining until a financial contract expires. Also called time to maturity.

Time to maturity

The time remaining until a financial contract expires. Also called time until expiration.

Time value of an option

The portion of an option's premium that is based on the amount of time remaining
until the expiration date of the option contract, and that the underlying components that determine the value of
the option may change during that time. time value is generally equal to the difference between the premium
and the intrinsic value. Related: in-the-money.

Time value of money

The idea that a dollar today is worth more than a dollar in the future, because the dollar
received today can earn interest up until the time the future dollar is received.

Time-weighted rate of return

Related: Geometric mean return.

Times-interest-earned ratio

Earnings before interest and tax, divided by interest payments.

Turnaround time

time available or needed to effect a turnaround.

times interest earned

A ratio that tests the ability of a business to make
interest payments on its debt, which is calculated by dividing annual
earnings before interest and income tax by the interest expense for the
year. There is no particular rule for this ratio, such as 3 or 4 times, but
obviously the ratio should be higher than 1.

Risk Premium

The additional rate of return required on a risky project
(investment) when compared to a risk-free project (investment)

Times Interest Earned Ratio

A measure of how well a company is able to meet its interest
payments based on the cash generated by its operations. It is
calculated by dividing the earnings before interest and taxes by the
total interest charges incurred by the firm.

cycle time

the time between the placement of an order to
the time the goods arrive for usage or are produced by
the company; it is equal to value-added time plus nonvalue-
added time

employee time sheet

a source document that indicates, for each employee, what jobs were worked on during the day and for what amount of time

idle time

the amount of time spent in storing inventory or
waiting at a production operation for processing

inspection time

the time taken to perform quality control activities

just-in-time (JIT)

a philosophy about when to do something;
the when is “as needed” and the something is a production,
purchasing, or delivery activity

just-in-time manufacturing system

a production system that attempts to acquire components and produce inventory only as needed, to minimize product defects, and to
reduce lead/setup times for acquisition and production

just-in-time training

a system that maps the skill sets employees
need and delivers the training they need just as they need it

lead time

see cycle time

processing time

the actual time consumed performing the
functions necessary to manufacture a product

service time

the actual time consumed performing the functions
necessary to provide a service

timeline

representation of the amounts and timing of all
cash inflows and outflows; it is used in analyzing cash flow
from a capital project

transfer time

the time consumed by moving products or
components from one place to another

Just-in-time manufacturing

The term for several manufacturing innovations that
result in a “pull” method of production, in which each manufacturing workstation
creates just enough product for the immediate needs of the next workstation in the
production process.

default premium

Difference in promised yields between a default-free bond and a riskier bond.

market risk premium

Risk premium of market portfolio. Difference between market return and return on risk-free Treasury bills.

maturity premium

Extra average return from investing in longversus short-term Treasury securities.

risk premium

Expected return in excess of risk-free return as compensation for risk.

Risk Premium

The difference between the yields of two bonds because of differences in their risk.

Time Deposit

See term deposit.

Overtime

A pay premium of 50 percent of the regular rate of pay that is earned
by employees on all hours worked beyond 40 hours in a standard work week

Premium Grant

A nonqualified stock option whose option price is set substantially
higher than the current fair market value at the grant date.

Timecard

A document or electronic record on which an employee records his or
her hours worked during a payroll period.

Time Clock

A device used to stamp an employee’s incoming or outgoing time
on either a paper document or an electronic record.

Just-in-time (JIT)

A cluster of manufacturing, design, and delivery practices designed to
continually reduce all types of waste, thereby improving production efficiency.

Level Premium Life Insurance

This is a type of insurance for which the cost is distributed evenly over the premium payment period. The premium remains the same from year to year and is more than actual cost of protection in the earlier years of the policy and less than the actual cost of protection in the later years. The excess paid in the early years builds up a reserve to cover the higher cost in the later years.

Premium

This is your payment for the cost of insurance. You may pay annually, semi-annually, quarterly or monthly. The least expensive method is annually. Using any of the other payment modes will cost you more money. For example, paying monthly will cost about 17% more. If you pay annually and terminate your coverage part way through the year, you may not receive a refund for the remaining months to the annual renewal date.
The cost of life insurance varies by age, sex, health, lifestyle, avocation and occupation. Generally speaking, the following is true at the time of applying for coverage; the older you are, the more will be the cost; of a male and female of the same age, the female will be considered 4 years younger; health problems will increase the cost of insurance and may result in rejection altogether; dangerous hobbies such as SCUBA diving, private flying, bungi jumping, parachuting, etc. may increase the cost of insurance and may result in rejection altogether; abuse of alcohol or drugs or a poor driving record will make getting coverage difficult.

Vanishing Premium

This term relates to participating whole life insurance and the use of the dividend to reduce or completely eliminate the need for future premiums. In the 1980's life insurance company's profits from investment were exceedingly high compared to historical experience. It became common for a salesperson to show new prospective clients how quickly his or her insurance company's dividends would cover the future cost of future premiums. In some cases more emphasis was put on the value of future dividends than on the fact that future dividends were not guaranteed and could only be projected based on current earnings. Many life insurance buyers have since learned that the dividends they expected in the 80's no longer exist in the 90's and they are continuing to dig into their pockets to pay insurance premiums.

Waiver of Premium

This is an option available to the applicant for life insurance which sets certain conditions under which an insurance policy will be kept in full force by the insurance company without the payment of premiums. Very specifically, a life insured would have to become totally disabled through injury or illness for a period of six months before the benefit kicks in. When it does, the insurance company retroactively pays premiums from the beginning of the disability until the time the insured is able to perform some form of regular activity. 'Totally disabled' is highlited here, because that is what is required to receive this benefit.

Risk Premium

The difference between the required rate of return on a riskless asset with the same expected life.

Annual Premium

Yearly amount payable by a client for a policy or component.

Automatic Waiver of Premium

A benefit that automatically forfeits premium payments.

Level Premium

A premium that remains unchanged throughout the life of a policy

Premium

Annual amount payable, by a client, for selected product or service.

Premium (Credit Insurance)

Annual or monthly amounts payable, by a client, for a selected insurance coverage to insure debt obligations to their creditors are protected.

Premium Mode

Payment schedule of policy premiums, usually selected by the policy owner (monthly, quarterly, annually).

Premium Offset

After premiums have been paid for a number of years, further annual premiums may be paid by the current dividends and the surrender of some of the paid-up additions which have built up in the policy. In effect, the policy can begin to pay for itself. Whether a policy becomes eligible for premium offset, the date on which it becomes eligible and whether it remains eligible once premium offset begins, will all depend on how the dividend scale changes over the years. Since dividends are not guaranteed, premium offset cannot be guaranteed either.

Unearned Premium

premiums paid for coverage not yet provided.

Waiver of Premium

A benefit that allows CLA to pay premiums on behalf of the insured.

CARs (cumulative abnormal returns)

a measure used in academic finance articles to measure the excess returns an investor would have received over a particular time period if he or she were invested in a particular stock.
This is typically used in control and takeover studies, where stockholders are paid a premium for being taken over. Starting some time period before the takeover (often five days before the first announced bid, but sometimes a longer period), the researchers calculate the actual daily stock returns for the target firm and subtract out the expected market returns (usually calculated using the firm’s beta and applying it to overall market movements during the time period under observation).
The excess actual return over the capital asset pricing model-determined expected return market is called an ‘‘abnormal return.’’ The cumulation of the daily abnormal returns over the time period under observation is the CAR. The term CAR(-5, 0) means the CAR calculated from five days before the
announcement to the day of announcement. The CAR(-1, 0) is a control premium, although Mergerstat generally uses the stock price five days before announcement rather than one day before announcement as the denominator in its control premium calculation. However, the CAR for any period other than (-1, 0) is not mathematically equivalent to a control premium.

Equity cap

An agreement in which one party, for an upfront premium, agrees to compensate the other at
specific time periods if a designated stock market benchmark is greater than a predetermined level.

Fixed-price tender offer

A one-time offer to purchase a stated number of shares at a stated fixed price,
usually a premium to the current market price.

Interest rate agreement

An agreement whereby one party, for an upfront premium, agrees to compensate the
other at specific time periods if a designated interest rate (the reference rate) is different from a predetermined
level (the strike rate).

Variable life insurance policy

A whole life insurance policy that provides a death benefit dependent on the
insured's portfolio market value at the time of death. Typically the company invests premiums in common
stocks, and hence variable life policies are referred to as equity-linked policies.

Yield to call

The percentage rate of a bond or note, if you were to buy and hold the security until the call date.
This yield is valid only if the security is called prior to maturity. Generally bonds are callable over several
years and normally are called at a slight premium. The calculation of yield to call is based on the coupon rate,
length of time to the call and the market price.

Yield curve

Graph of yields (vertical axis) of a particular type of security
versus the time to maturity (horizontal axis). This curve usually slopes
upward, indicating that investors usually expect to receive a premium for
securities that have a longer time to maturity. The benchmark yield curve is
for U.S. Treasury securities with maturities ranging from three months to 30
years. See Term structure.

capital asset pricing model (CAPM)

Theory of the relationship between risk and return which states that the expected risk
premium on any security equals its beta times the market risk premium.

Dividend

As the term dividend relates to a corporation's earnings, a dividend is an amount paid per share from a corporation's after tax profits. Depending on the type of share, it may or may not have the right to earn any dividends and corporations may reduce or even suspend dividend payments if they are not doing well. Some dividends are paid in the form of additional shares of the corporation. Dividends paid by Canadian corporations qualify for the dividend tax credit and are taxed at lower rates than other income.
As the term dividend relates to a life insurance policy, it means that if that policy is "participating", the policy owner is entitled to participate in an equitable distribution of the surplus earnings of the insurance company which issued the policy. Surpluses arise primarily from three sources:
1) the difference between anticipated and actual operating expenses,
2) the difference between anticipated and actual claims experience, and
3) interest earned on investments over and above the rate required to maintain policy reserves. Having regard to the source of the surplus, the "dividend" so paid can be considered, in part at least, as a refund of part of the premium paid by the policy owner.
Life insurance policy owners of participating policies usually have four and sometimes five dividend options from which to choose:
1) take the dividend in cash,
2) apply the dividend to reduce current premiums,
3) leave the dividends on deposit with the insurance company to accumulate at interest like a savings plan,
4) use the dividends to purchase paid-up whole life insurance to mature at the same time as the original policy,
5) use the dividends to purchase one year term insurance equal to the guaranteed cash value at the end of the policy year, with any portion of the dividend not required for this purpose being applied under one of the other dividend options.
NOTE: It is suggested here that if you have a participating whole life policy and at the time of purchase received a "dividend projection" of incredible future savings, ask for a current projection. Life insurance company's surpluses are not what they used to be.

Grace Period

A specific period of time after a premium payment is due during which the policy owner may make a payment, and during which, the protection of the policy continues. The grace period usually ends in 30 days.

Non-Smoker Discount

In October 1996 it was announced in the international news that scientists had finally located the link between cigarette smoking and lung cancer. In the early 1980's, some Canadian Life Insurance Companies had already started recognizing that non-smokers had a better life expectancy than smokers so commenced offering premium discounts for life insurance to new applicants who have been non-smokers for at least 12 months before applying for coverage. Today, most life insurance companies offer these discounts.
Savings to non-smokers can be up to 50% of regular premium depending on age and insurance company. Most life insurance companies offering non-smoker rates insist that the person applying for coverage have abstained from any form of tobacco or marijuana for at least twelve months, some companies insist on longer periods, up to 15 years.
Tobacco use is generally considered to be cigarettes, cigarillos, cigars, pipes, chewing tobacco, nicorette gum, snuff, marijuana and nicotine patches. In addition to these, if anyone tests positive to cotinine, a by-product of nicotine, they are also considered a smoker. There are some insurance companies which allow moderate or occasional use of cigars, cigarillos or pipes as acceptable for non-smoker status. Experienced brokers are aware of how to locate these insurance companies and save you money.
Special care should be taken by applicants for coverage who qualify for non-smoker rates by virtue of having ceased a smoking habit for the required period before application, but for some reason, fall back into the smoking habit some time after obtaining coverage. While contractually, the insurance company is still bound to a non-smoking rate, the facts of the applicant's smoking hiatus may become vague over the subsequent years of the resumed habit and at time of death claim, the insurance company may decide to contest the original non-smoking declaration. The consequence is not simply a need to back pay the difference between non-smoker and smoker rates but in reality the possibility of denial of death claim. It is therefore, important to advise the servicing broker as well as the insurance company of the change in smoking habits to make certain that sufficient evidence is documented to track the non-smoking period.

Temporary Life Insurance

Temporary insurance coverage is available at time of application for a life insurance policy if certain conditions are met. Normally, temporary coverage relates to free coverage while the insurance company which is underwriting the risk, goes through the process of deciding whether or not they will grant a contract of coverage. The qualifications for temporary coverage vary from insurance company to insurance company but generally applicants will qualify if they are between the ages of 18 and 65, have no knowledge or suspicions of ill health, have not been absent from work for more than 7 days within the prior 6 months because of sickness or injury and total coverage applied for from all sources does not exceed $500,000. Normally a cheque covering a minimum of one months premium is required to complete the conditions for this kind of coverage. The insurance company applies this deposit towards the cost of a policy at its issue date, which may be several weeks in the future.

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