DEFINITION of 'Commuted Value'

The present value of the future series of cash flows required to fulfill a pension obligation. Commuted value is therefore the net present value of a future financial obligation. This value can be computed mathematically assuming a given rate of interest.

BREAKING DOWN 'Commuted Value'

Pension fund managers must compute commuted value in order to determine their payout obligations and reserve requirements. The process for this calculation is similar to computing net present value of a capital budgeting project. The higher the interest rate, the lower the amount required, and vice-versa. The further into the future the money will be required, the lower the commuted value, and vice-versa.

RELATED TERMS
  1. Present Value - PV

    The current worth of a future sum of money or stream of cash ...
  2. Commuting Expenses

    Expenses that are incurred as a result of the taxpayer's regular ...
  3. Commutation

    The right that a beneficiary has to exchange one type of income ...
  4. Net Present Value Rule

    A rule stating that an investment should be accepted if its net ...
  5. Net Present Value Of Growth Opportunities ...

    A calculation of the net present value of all future cash flows ...
  6. Adjusted Present Value - APV

    The Net Present Value (NPV) of a project if financed solely by ...
Related Articles
  1. Personal Finance

    Commuters' University: On-The-Road Learning

    Effectively using your commute time could place you miles ahead of your competition.
  2. Investing

    Extreme Commuting: Is It For You?

    Americans are spending more time behind the wheel - find out what's driving this trend.
  3. Retirement

    A Primer On Defined-Benefit Pension Plans

    Most of us will rely on a pension plan in the future, so it's best to know the details of the various plans before signing up.
  4. Investing

    Time Value Of Money: Determining Your Future Worth

    Determining monthly contributions to college funds, retirement plans or savings is easy with this calculation.
  5. Insurance

    Commuters: Here's What Traffic Jams Cost You

    If you think sitting in traffic is annoying, wait until you see how much it’s costing you per year.
  6. Investing

    Understanding The Time Value Of Money

    Find out why time really is money by learning to calculate present and future value.
  7. Financial Advisor

    Understanding Net Present Value

    Learn how this value is used to determine the worth of a project.
  8. Investing

    The Difference Between Enterprise Value and Equity Value

    Enterprise value calculates a business’s current value, while equity value offers a snapshot of that business’s current and potential future value.
  9. Retirement

    The Investing Risk Of Underfunded Pension Plans

    Determine the risk to a company's EPS and financial condition resulting from an underfunded pension plan.
  10. Investing

    Calculating Future Value

    Future value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today.
RELATED FAQS
  1. Why is the time value of money (TVM) an important concept to investors?

    Understand why the time value of money is an important concept for investors. Learn when present value and future value calculations ... Read Answer >>
  2. How do you use a financial calculator to determine present value?

    Learn how to utilize a financial calculator to calculate present value. Understand the necessary data, why it is important ... Read Answer >>
  3. How do investors calculate the present value of a future investment?

    Learn what present value is, how to calculate the present value of a future investment, and what formula investors use to ... Read Answer >>
  4. What is the difference between a company's book value per share and its intrinsic ...

    Book value and intrinsic value are two ways to measure the value of a company.In simple terms, book value is based on the ... Read Answer >>
  5. What are the disadvantages of using net present value as an investment criterion?

    While net present value (NPV) calculations are useful when you are valuing investment opportunities, the process is by no ... Read Answer >>
  6. What is the difference between economic value and market value?

    Learn about the differences between economic value and market value. Discover how they serve different purposes for businesses ... Read Answer >>
Hot Definitions
  1. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  2. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  3. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  4. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  5. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  6. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
Trading Center