Defined terms for the annuity market and lifetime income landscape.
Present value is the amount that a future sum of money is worth today after accounting for the return that could be earned on money in the interim, converted using a discount rate that reflects the time value of money.
Real versus nominal discount rate is the distinction between a rate stated in real terms (return above inflation) and a rate stated in nominal terms (including inflation), applied so that projected cash flows and the rate used to discount them are on the same basis.
Real versus nominal returns is the distinction between an investment return stated before and after inflation adjustment, where the nominal return is the raw percentage change in dollar value and the real return expresses the same change in purchasing-power terms.
Risk-adjusted return is any return figure that has been modified to reflect the amount of risk taken to produce it, allowing investments with different risk profiles to be compared on a common basis rather than by return alone.
Scenario analysis is an analytical technique that constructs specific coherent combinations of inputs representing alternative future conditions and reports the model's output under each combination.
