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Definition of Compound interest
interest paid on previously earned interest as well as on the principal.
interest paid on principal and on interest earned in previous
a method of determining interest in which interest that was earned in prior periods is added to the original investment so that, in each successive period, interest is earned on both principal and interest
interest earned on interest.
interest earned on an investment at periodic intervals and added to principal and previous interest earned. Each time new interest earned is calculated it is on a combined total of principal and previous interest earned. Essentially, interest is paid on top of interest.
Annualized interest rate on a security computed using compound interest techniques.
interest earned on reinvestment of each interest payment on money invested.
interest calculated only on the initial investment. Related:compound interest.
The value that a sum of money (the present value) earning
interest rate that is annualized using compound interest.
Numbers found in compound interest and annuity tables. Usually called the FVIF or PVIF.
the combined discounts for lack of control and marketability. g the constant growth rate in cash flows or net income used in the ADF, Gordon model, or present value factor.
The accumulated coupon interest earned but not yet paid to the seller of a bond by the
Swap in which the principal or national amount rises (falls) as interest rates
Related: Benchmark interest rate.
Also called the base interest rate, it is the minimum interest rate investors will
The requirement that a claim holder voting against a plan of reorganization
interest that is not immediately expensed, but rather is considered as an asset and is then
Net income plus depreciation.
Option on an option.
The process of accumulating the time value of money forward in time. For example, interest
The number of compounding periods in a year. For example, quarterly
The length of the time period (for example, a quarter in the case of quarterly
The process of accumulating the time value of money forward in time on a
Covered interest arbitrage
A portfolio manager invests dollars in an instrument denominated in a foreign
compounding the time value of money for discrete time intervals.
Earnings before interest and taxes (EBIT)
A financial measure defined as revenues less cost of goods sold
Effective annual interest rate
An annual measure of the time value of money that fully reflects the effects of
Equilibrium rate of interest
The interest rate that clears the market. Also called the market-clearing interest
Forward interest rate
interest rate fixed today on a loan to be made at some future date.
interest earned before taxes are deducted.
The price paid for borrowing money. It is expressed as a percentage rate over a period of time and
Interest coverage ratio
The ratio of the earnings before interest and taxes to the annual interest expense. This
Interest coverage test
A debt limitation that prohibits the issuance of additional long-term debt if the issuer's
Interest equalization tax
Tax on foreign investment by residents of the U.S. which was abolished in 1974.
Contractual debt payments based on the coupon rate of interest and the principal amount.
Interest-only strip (IO)
A security based solely on the interest payments form a pool of mortgages, Treasury
Interest rate agreement
An agreement whereby one party, for an upfront premium, agrees to compensate the
Interest rate cap
Also called an interest rate ceiling, an interest rate agreement in which payments are made
Interest rate ceiling
Related: interest rate cap.
Interest rate floor
An interest rate agreement in which payments are made when the reference rate falls
Interest rate on debt
The firm's cost of debt capital.
Interest rate parity theorem
interest rate differential between two countries is equal to the difference
Interest rate risk
The risk that a security's value changes due to a change in interest rates. For example, a
Interest rate swap
A binding agreement between counterparties to exchange periodic interest payments on
A firm's deduction of the interest payments on its debt from its earnings before it calculates
Interest tax shield
The reduction in income taxes that results from the tax-deductibility of interest payments.
Nominal interest rate
The interest rate unadjusted for inflation.
The total number of derivative contracts traded that not yet been liquidated either by an
Pooling of interests
An accounting method for reporting acquisitions accomplished through the use of equity.
Rate of interest
The rate, as a proportion of the principal, at which interest is computed.
Real interest rate
The rate of interest excluding the effect of inflation; that is, the rate that is earned in terms
Realized compound yield
Yield assuming that coupon payments are invested at the going market interest
This is the total number of shares of a security that investors have borrowed, then sold in the
Simple compound growth method
A method of calculating the growth rate by relating the terminal value to
Spot interest rate
interest rate fixed today on a loan that is made today. Related: forward interest rates.
Stated annual interest rate
The interest rate expressed as a per annum percentage, by which interest
Earnings before interest and tax, divided by interest payments.
True interest cost
For a security such as commercial paper that is sold on a discount basis, the coupon rate
Earnings before interest and taxes (EBIT)
The operating profit before deducting interest and tax.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
The operating profit before deducting interest, tax, depreciation and amortization.
The cost of money, received on investments or paid on borrowings.
Profit before interest and taxes (PBIT)
Income that a company receives in the form of interest, usually as the result of keeping money in interest-bearing accounts at financial institutions and the lending of money to other companies.
The amount of interest that is owed but has not been paid at the end of a period.
earnings before interest and income tax (EBIT)
A measure of profit that
times interest earned
A ratio that tests the ability of a business to make
The amount of interest accumulated on a debt security between
The process of continuously adding interest to a principal plus
The process of adding interest to a principal plus interest amount
Effective Interest Rate
The rate of interest actually earned on an investment. It is
Nominal Interest Rate
The rate of interest quoted, or stated, to be paid on a security
Real Interest Rate
The rate of interest paid on an investment adjusted for inflation
interest paid only on the principal; calculated by multiplying the
Times Interest Earned Ratio
A measure of how well a company is able to meet its interest
the time between each interest computation
a method of determining interest in which interest is earned only on the original investment (or principal) amount
The cost of funds loaned to an entity. It can also refer to the equity ownership
Pooling of interests
An method for accounting for a business combination. When used, the expenses of the combination are charged against income at once, and the net
interest rate parity
Theory that forward premium equals interest rate differential.
interest tax shield
Tax savings resulting from deductibility of interest payments.
nominal interest rate
Rate at which money invested grows.
real interest rate
Rate at which the purchasing power of an investment increases.
interest earned only on the original investment; no interest is earned on interest.
Interest Rate Differential
The interest rate on our financial assets minus the interest rate on a foreign country's financial assets.
Interest Rate, Nominal
Payment for the use of borrowed funds, measured as a percentage per year of these funds.
Interest Rate Parity
Theory that real interest rates are approximately the same across countries except for a risk premium.
Interest Rate, Real
Nominal interest rate less expected inflation.
Money Rate of Interest
See interest rate, nominal.
Real Rate of Interest
See interest rate, real.
Term Structure of Interest Rates
Relationship among interest rates on bonds with different terms to maturity.
interest incurred during the construction period on monies invested in
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
An earningsbased measure that, for many, serves as a surrogate for cash flow. Actually consists of working
In England in the 1700's it was popular to bet on the date of death of certain prominent public figures. Anyone could buy life insurance on another's life, even without their consent. Unfortunately, some died before it was their time, dispatched prematurely in order that the life insurance proceeds could be collected. In 1774, English Parliament passed a law which restricted the right to be a beneficiary on a life insurance contract to those who would suffer an economic loss when the life insured died. The law also provided that a person has an unlimited insurable interest in his own life. It is still a legal stipulation that an insurance contract is not valid unless insurable interest exists at the time the policy is issued. Life Insurance companies will not, however, issue unlimited amounts of coverage to an individual. The amount of life insurance which will be approved has to approximate the loss caused by the death of the individual and must not result in a windfall for the beneficiary.
The amount of interest owing but not paid.
Fixed Interest Rate
A rate that does not fluctuate with general market conditions.
Floating Interest Rate
A rate that fluctuates with general market condition.
A charge for the use of money supplied by a lender.
Cost of using money, expressed as a rate per period of time, usually one year.
Interest Rate Risk
Possibility that interest rates will rise during the term of a loan thereby increasing the annual cost of borrowing.
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