Commuted Value

AAA

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.

INVESTOPEDIA EXPLAINS '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. Net Present Value - NPV

    The difference between the present value of cash inflows and ...
  2. Pension Plan

    A type of retirement plan, usually tax exempt, wherein an employer ...
  3. Interest

    1. The charge for the privilege of borrowing money, typically ...
  4. Actuary

    A professional statistician working for an insurance company. ...
  5. Future Value - FV

    The value of an asset or cash at a specified date in the future ...
  6. Present Value - PV

    The current worth of a future sum of money or stream of cash ...
RELATED FAQS
  1. What is the difference between a simple random sample and a stratified random sample?

    Simple random samples and stratified random samples differ in how the sample is drawn from the overall population of data. ... Read Full Answer >>
  2. What are the pros and cons of operating on a balanced-budget?

    Few issues are more complicated, contentious and controversial in contemporary American politics than balancing the federal ... Read Full Answer >>
  3. What are the advantages and disadvantages of using systematic sampling?

    As a statistical sampling method, systematic sampling is simpler and more straightforward than random sampling. It can also ... Read Full Answer >>
  4. What is the difference between the standard error of means and standard deviation?

    The standard deviation, or SD, measures the amount of variability or dispersion for a subject set of data from the mean, ... Read Full Answer >>
  5. How can you use a cash flow statement to make a budget?

    To use the cash flow statement to make a budget, a company needs to combine the operating cash flow portion of its cash flow ... Read Full Answer >>
  6. What level of correlation among investments will guarantee market returns but have ...

    The efficient frontier set forth by modern portfolio theory (MPT) can provide an estimate of an optimal portfolio that allows ... Read Full Answer >>
Related Articles
  1. Insurance

    What Happens If Your Insurance Company Goes Bankrupt?

    When insurance companies go bankrupt or face financial difficulty, it's bad news for policy holders.
  2. Home & Auto

    Why Your Will Should Name Designated Beneficiaries

    Find out how to make the tough decisions when it comes to choosing who will receive your assets and how they will be paid out.
  3. Economics

    What is Systematic Sampling?

    Systematic sampling is similar to random sampling, but it uses a pattern for the selection of the sample.
  4. Fundamental Analysis

    Explaining Expected Return

    The expected return is a tool used to determine whether or not an investment has a positive or negative average net outcome.
  5. Fundamental Analysis

    Explaining the Geometric Mean

    The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment or portfolio.
  6. Investing

    The Labor Market Recovery’s Missing Ingredient

    Job creation is running at the fastest pace since the 90s, and there is some evidence that wage growth is finally starting to accelerate, albeit modestly.
  7. Budgeting

    Budget-Stretching Gardening Tips

    A bakers dozen of easy, budget-stretching garden ideas just in time for spring and summer planting.
  8. Budgeting

    An Analysis Of The US Trade Deficit

    The United States' trade deficit is historically large, the biggest in the world. With luck, it'll get even larger.
  9. Trading Strategies

    Best Undergraduate Degrees For Day Traders

    We look at some popular undergrad majors for those wanting to begin a career in the exciting world of fast-paced trading.
  10. Fundamental Analysis

    Explaining Standard Error

    Standard error is a statistical term that measures the accuracy with which a sample represents a population.

You May Also Like

Hot Definitions
  1. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  2. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  3. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  4. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
  5. Wash Trading

    The process of buying shares of a company through one broker while selling shares through a different broker. Wash trading ...
Trading Center