|Effective annual interest rate|
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Definition of Effective annual interest rate
Effective annual interest rate
An annual measure of the time value of money that fully reflects the effects of
effective annual interest rate
interest rate that is annualized using compound interest.
the rate of return on investment that would be required by a prudent investor to invest in an asset with a specific level risk. Also, a rate of return used to convert a monetary sum, payable or receivable in the future, into present value.
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.
Schedule of depreciation rates allowed for tax purposes.
Any depreciation method that produces larger deductions for depreciation in the
The accumulated coupon interest earned but not yet paid to the seller of a bond by the
A strategy that uses available information and forecasting techniques to seek a
Publicly traded issues that may be collateralized by mortgages and MBSs.
Money after-tax rate of return minus the inflation rate.
The discount rate that reflects only the business risks of a project and abstracts from the
Swap in which the principal or national amount rises (falls) as interest rates
For investment companies, the management fee and "other expenses,"
The periodic rate times the number of periods in a year. For example, a 5%
The effective, or true, annual rate of return. The APY is the rate actually
Yearly record of a publicly held company's financial condition. It includes a description of the
If stock X appreciates 1.5% in one month, the annualized gain for that sock over a twelve
Annualized holding period return
The annual rate of return that when compounded t times, would have
Arithmetic average (mean) rate of return
Arithmetic mean return.
Auction rate preferred stock (ARPS)
Floating rate preferred stock, the dividend on which is adjusted every
Average rate of return (ARR)
The ratio of the average cash inflow to the amount invested.
Average tax rate
Taxes as a fraction of income; total taxes divided by total taxable income.
A strategy in which the maturities of the securities included in the portfolio are concentrated
Base interest rate
Related: Benchmark interest rate.
Basic business strategies
Key strategies a firm intends to pursue in carrying out its business plan.
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
Break-even payment rate
The prepayment rate of a MBS coupon that will produce the same CFY as that of
Break-even tax rate
The tax rate at which a party to a prospective transaction is indifferent between entering
Broker loan rate
Related: Call money rate.
A strategy in which a portfolio is constructed so that the maturities of its securities are highly
A passive investment strategy with no active buying and selling of stocks from the
Call money rate
Also called the broker loan rate , the interest rate that banks charge brokers to finance
interest that is not immediately expensed, but rather is considered as an asset and is then
Cash flow after interest and taxes
Net income plus depreciation.
A strategy in which a put and with the same strike price and expiration are either both
interest paid on previously earned interest as well as on the principal.
A firm engaged in two or more unrelated businesses.
A merger involving two or more firms that are in unrelated businesses.
The acquisition of one firm by anther firm.
Debt obligations issued by corporations.
A legal document creating a corporation.
One of the three areas of the discipline of finance. It deals with the operation of the firm
Corporate financial management
The application of financial principals within a corporation to create and
Corporate financial planning
Financial planning conducted by a firm that encompasses preparation of both
Corporate processing float
The time that elapses between receipt of payment from a customer and the
Corporate tax view
The argument that double (corporate and individual) taxation of equity returns makes
Corporate taxable equivalent
rate of return required on a par bond to produce the same after-tax yield to
In bonds, notes or other fixed income securities, the stated percentage rate of interest, usually
Covered call writing strategy
A strategy that involves writing a call option on securities that the investor
Covered interest arbitrage
A portfolio manager invests dollars in an instrument denominated in a foreign
Covered or hedge option strategies
Strategies that involve a position in an option as well as a position in the
The interest rate offered on an investment type insurance policy.
The exchange rate between two currencies expressed as the ratio of two foreign exchange rates
The return at which two alternative projects have the same net present value.
Current rate method
Under this currency translation method, all foreign currency balance-sheet and income
Refers to multi-period cash flow matching.
The interest rate that the Federal Reserve charges a bank to borrow funds when a bank is
The fixed or floating rate paid on preferred stock based on par value.
Dollar-weighted rate of return
Also called the internal rate of return, the interest rate that will make the
Earnings before interest and taxes (EBIT)
A financial measure defined as revenues less cost of goods sold
Effective annual yield
annualized interest rate on a security computed using compound interest techniques.
Effective call price
The strike price in an optional redemption provision plus the accrued interest to the
The convexity of a bond calculated with cash flows that change with yields.
In an interest rate swap, the date the swap begins accruing interest.
The duration calculated using the approximate duration formula for a bond with an
Effective margin (EM)
Used with SAT performance measures, the amount equaling the net earned spread, or
A measure of the time value of money that fully reflects the effects of compounding.
The gross underwriting spread adjusted for the impact of the announcement of the common
Equilibrium rate of interest
The interest rate that clears the market. Also called the market-clearing interest
Equivalent annual annuity
The equivalent amount per year for some number of years that has a present
Equivalent annual benefit
The equivalent annual annuity for the net present value of an investment project.
Equivalent annual cash flow
Annuity with the same net present value as the company's proposed investment.
Equivalent annual cost
The equivalent cost per year of owning an asset over its entire life.
The price of one country's currency expressed in another country's currency.
Exchange Rate Mechanism (ERM)
The methodology by which members of the EMS maintain their
Exchange rate risk
Also called currency risk, the risk of an investment's value changing because of currency
Federal funds rate
This is the interest rate that banks with excess reserves at a Federal Reserve district bank
A country's decision to tie the value of its currency to another country's currency, gold
A loan on which the rate paid by the borrower is fixed for the life of the loan.
In an interest rate swap the counterparty who pays a fixed rate, usually in exchange for a
Floating exchange rate
A country's decision to allow its currency value to freely change. The currency is not
A guaranteed investment contract where the credit rating is tied to some variable
Floating-rate note (FRN)
Note whose interest payment varies with short-term interest rates.
In an interest rate swap, the counterparty who pays a rate based on a reference rate,
Preferred stock paying dividends that vary with short-term interest rates.
Forward exchange rate
Exchange rate fixed today for exchanging currency at some future date.
Forward interest rate
interest rate fixed today on a loan to be made at some future date.
A projection of future interest rates calculated from either the spot rates or the yield curve.
Forward rate agreement (FRA)
Agreement to borrow or lend at a specified future date at an interest rate
interest earned before taxes are deducted.
Compound annual growth rate for the number of full fiscal years shown. If there is a negative
Historical exchange rate
An accounting term that refers to the exchange rate in effect when an asset or
The required return in capital budgeting.
A bond portfolio strategy whose goal is to eliminate the portfolio's risk against a
Implied repo rate
The rate that a seller of a futures contract can earn by buying an issue and then delivering
Import-substitution development strategy
A development strategy followed by many Latin American
Incremental internal rate of return
IRR on the incremental investment from choosing a large project
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
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