vesting period

(noun)

A period of time an investor or other person holding a right to something must wait until they are capable of fully exercising their rights and until those rights may not be taken away.

Related Terms

Examples of vesting period in the following topics:

  • Employee Stock Compensation

    • The journal entry to expense the options each period would be: Compensation Expense $50,000 Additional Paid-In Capital, Stock Options $50,000.
    • This expense would be repeated for each period during the option plan.
    • Paid-In capital will have to be reduced by the amount credited over the three year period.
    • A vesting period usually needs to be met before options can be sold or transferred (e.g., 20% of the options vest each year for five years).
    • A periodic compensation expense is recorded for the value of the option divided by the employee's vesting period.

  • Contractual Saving

    • Insurance companies provide protection for people who buy insurance policies.Insurance policy prevents financial hardship, such as a medical emergency, car accident, or the death of a family member.Insurance companies are financial intermediaries because they link the funds from the policyholders to the financial markets.Policyholders make periodical payments to the insurance company called premiums.Insurance company will invest the premiums in the financial
    • Pension funds are another contractual savings institution.Many people save money for retirement, and pension funds become a vital form of saving.Some employers sponsor pension funds as a job benefit, or workers can voluntarily pay into personal retirement accounts.Then the financial companies manage the pension funds, and they invest pension funds into the financial markets.Pension fund managers can accurately predict when people will retire and usually invest in long-term securities, such as stocks, bonds, and mortgages.A person can only receive benefits from the pension fund after the person becomes vested.Vested means employees must work for their employer for a time period before they can receive the benefits from the pension plan.Time period varies for the pension funds.For example, some city governments require a person to be employed by the city for 10 years before this person becomes 100% vested in the city's pension plan.

  • Market/Book Ratio

    • In such cases, P/B should also be calculated on a "diluted" basis, because stock options may well vest on the sale of the company, change of control, or firing of management.

  • Liquidation Preference

    • Unclaimed assets will usually vest in the state as bona vacantia.

  • Calculating the Payback Period

    • To calculate a more exact payback period: Payback Period = Amount to be initially invested / Estimated Annual Net Cash Inflow.
    • Payback period in capital budgeting refers to the period of time required for the return on an investment to "repay" the sum of the original investment.
    • Payback period is usually expressed in years.
    • The modified payback period algorithm may be applied then.
    • To be more detailed, the payback period would be: 4 + 2/7 = 4.29 year.

  • Advantages of the Payback Method

    • Payback period in capital budgeting refers to the period of time required for the return on an investment to "repay" the sum of the original investment.
    • All else being equal, shorter payback periods are preferable to longer payback periods.
    • Although primarily a financial term, the concept of a payback period is occasionally extended to other uses, such as energy payback period (the period of time over which the energy savings of a project equal the amount of energy expended since project inception).
    • The payback period is an effective measure of investment risk.
    • The project with a shortest payback period has less risk than with the project with longer payback period.

  • Calculating Values for Fractional Time Periods

    • Up to this point, we have implicitly assumed that the number of periods in question matches to a multiple of the compounding period.
    • Compounding periods can be any length of time, and the length of the period affects the rate at which interest accrues.
    • In this case, you need to find the amount of money that is actually in the account, so you round the number of periods down to the nearest whole number (assuming one period is the same as a compounding period; if not, round down to the nearest compounding period).
    • Even if interest compounds every period, and you are asked to find the balance at the 6.9999th period, you need to round down to 6.
    • The last time the account actually accrued interest was at period 6; the interest for period 7 has not yet been paid.

  • Number of Periods

    • In , nrepresents the number of periods.
    • A period is just a general term for a length of time.
    • If one period is one month, the discount rate must be X% per month.
    • In compound interest, the interest in one period is also paid on all interest accrued in previous periods.
    • Define what a period is in terms of present value calculations

  • Single-Period Investment

    • A period is a general block of time.
    • Usually, a period is one year.
    • The number of periods can be represented as either t or n.
    • Let's go through an example of a single-period investment.
    • Since this is a single-period investment, t (or n) is 1.

  • Calculating Values for Different Durations of Compounding Periods

    • Sometimes, the units of the number of periods does not match the units in the interest rate.
    • For example, the interest rate could be 12% compounded monthly, but one period is one year.
    • This atom will discuss how to handle different compounding periods.
    • The equation follows the same logic as the standard formula. r/n is simply the nominal interest per compounding period, and nt represents the total number of compounding periods.
    • The last tricky part of using these formulas is figuring out how many periods there are.