What is Hamada’s Equation? Hamada’s Equation falls under the corporate finance umbrella. It is used to differentiate a levered company’s financial risk from its business risk. It combines two theorems: the Modigliani-Miller Theorem and the Capital Asset Pricing Model (CAPM). Hamada’s equation is structured in a way that helps determine, first, a company’s levered beta,…
What is a Keogh Plan? A Keogh Plan is a retirement plan that can be set up by self-employed individuals and those who work for them. Small businesses, partnerships, limited liability companies (LLCs), and sole proprietorships are eligible to establish Keogh plans. Keogh plans are still used today; however, they’ve declined in popularity, with individual/single…
What are the 4 P’s of Marketing? The “4 P’s of Marketing” refer to the four key elements comprising the process of marketing a product or service. They involve the marketing mix, which is a set of tools that a company uses to influence consumers into buying its product. The marketing mix addresses factors such…
What is a SEP IRA? A SEP IRA (Simplified Employee Pension Individual Retirement Arrangement) is a variation on traditional or Roth IRAs that are used by businesses for themselves and their employees. Most commonly, SEP retirement plans are used by individuals who are self-employed; employees working for the individual must all receive the same benefits…
What is the 457 Plan? The 457 Plan is a type of tax-advantaged retirement plan with deferred compensation. The plan is non-qualified – it doesn’t meet the guidelines of the Employee Retirement Income Security Act (ERISA). 457 plans are offered by state and local government employers, as well as certain non-profit employers. How 457 Plans…
What is a 529 Plan? A 529 plan is a savings plan that offers tax advantages and supports the idea of saving for higher education expenses in the future. States, state agencies, or educational institutions sponsor 529 plans, also called “qualified tuition plans.” A designated beneficiary must be attached to the plan. The savings plan…
What is Unconditional Probability? Unconditional probability, also known as marginal probability, refers to a probability that is unaffected by previous or future events. In other words, unconditional probability is the probability of an event regardless of the preceding or future occurrence of other events. In simplest terms, unconditional probability is simply the probability of an…
What is Corporate Governance? Corporate governance is a system that guides the conduct of the people within an organization, as well as the direction of the organization itself. Corporate governance is altogether different from the daily operational decisions and activities that are executed by the management of an organization. Corporate governance is the domain of…
What is the Addition Rule for Probabilities? Given multiple events, the addition rule for probabilities is used to compute the probability that at least one of the events happens. Probability can be defined as the branch of mathematics that quantifies the certainty or uncertainty of an event or a set of events. Related Concepts Before…
What is Anchoring and Adjustment? Anchoring and adjustment refers to a cognitive heuristic that influences how people assess probabilities in an intuitive manner. According to the anchoring and adjustment heuristic, people employ a certain starting point (“the anchor”) and make adjustments until they reach an acceptable value over time. The heuristic was first hypothesized by…
