Page 55 - Economic Damage Calculations
P. 55
reasonable royalty. A hypothetical royalty fee used as a measure of damages to compensate for the
infringement of a patent.
risk. The concept that actual outcomes may not be occur as expected.
risk aversion. The concept that investors, all else equal, prefer a certain outcome over an uncertain
outcome. This preference for a certain outcome is observable in values paid for investments
providing more certainty in returns or outcomes.
risk-adjusted (rate of return). A rate of return (typically higher than a risk-free rate) that reflects
the higher return expected for an investment with a certain risk profile.
risk-free rate (of return). The rate of return available in the market on an investment free of default
risk. fn 19
risk premium. A rate of return added to a risk-free rate to reflect risk. fn 20
size risk premium. A rate of return added to the risk-free to account for the higher return expected
from a small company, all else equal.
success scenario. A possible outcome that represents a favorable outcome compared to the expected
value.
systematic risk. The risk that is common to all risky securities and cannot be eliminated through di-
versification. One measure of systematic risk in stocks is the beta coefficient. fn 21
tort. A legal cause of action that arises as a result of a civil wrong, including personal injury, proper-
ty damage, unfair competition, unlawful misappropriation, negligence, or fraud.
traditional approach. See capital markets approach.
time value of money. The concept of the value of money at one point in time as compared to the
value of the money, including the promise or expectation of such, at some other time period.
total offset method. A method of converting future loss values in personal injury matters to present
value with an assumed future growth rate offset by the discount rate, such that a net discount rate
of zero is used.
unsystematic risk. The risk specific to an individual security that can be avoided through diversifi-
cation. fn 22
fn 19 SSVS No. 1.
fn 20 Ibid.
fn 21 Ibid.
fn 22 Ibid.
© 2020 Association of International Certified Professional Accountants 53
