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Rate of interest |
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Definition of Rate of interestRate of interestThe rate, as a proportion of the principal, at which interest is computed.
Related Terms:Equilibrium rate of interestThe interest rate that clears the market. Also called the market-clearing interest Money Rate of InterestSee interest rate, nominal. Real Rate of InterestSee interest rate, real. Amortizing interest rate swapSwap in which the principal or national amount rises (falls) as interest rates Base interest rateRelated: Benchmark interest rate. Benchmark interest rateAlso called the base interest rate, it is the minimum interest rate investors will Effective annual interest rateAn annual measure of the time value of money that fully reflects the effects of effective annual interest rateinterest rate that is annualized using compound interest. Effective Interest RateThe rate of interest actually earned on an investment. It is Fixed Interest RateA rate that does not fluctuate with general market conditions. Floating Interest RateA rate that fluctuates with general market condition. Forward interest rateinterest rate fixed today on a loan to be made at some future date. Interest RateCost of using money, expressed as a rate per period of time, usually one year. Interest Raterate charged or paid for the use of money, normally expressed as a percentage Interest rate agreementAn agreement whereby one party, for an upfront premium, agrees to compensate the Interest rate capAlso called an interest rate ceiling, an interest rate agreement in which payments are made Interest rate ceilingRelated: interest rate cap. Interest Rate DifferentialThe interest rate on our financial assets minus the interest rate on a foreign country's financial assets. Interest rate floorAn interest rate agreement in which payments are made when the reference rate falls Interest Rate, NominalPayment for the use of borrowed funds, measured as a percentage per year of these funds. Interest rate on debtThe firm's cost of debt capital. interest rate parityTheory that forward premium equals interest rate differential. Interest Rate ParityTheory that real interest rates are approximately the same across countries except for a risk premium. Interest rate parity theoreminterest rate differential between two countries is equal to the difference Interest Rate, RealNominal interest rate less expected inflation. Interest rate riskThe risk that a security's value changes due to a change in interest rates. For example, a Interest Rate RiskPossibility that interest rates will rise during the term of a loan thereby increasing the annual cost of borrowing. Interest rate swapA binding agreement between counterparties to exchange periodic interest payments on Nominal interest rateThe interest rate unadjusted for inflation. Nominal Interest RateThe rate of interest quoted, or stated, to be paid on a security nominal interest raterate at which money invested grows. Nominal Interest RateThe contracted, or stated, interest rate, undeflated for price level changes. Real interest rateThe rate of interest excluding the effect of inflation; that is, the rate that is earned in terms Real Interest RateThe rate of interest paid on an investment adjusted for inflation real interest raterate at which the purchasing power of an investment increases. Spot interest rateinterest rate fixed today on a loan that is made today. Related: forward interest rates. Stated annual interest rateThe interest rate expressed as a per annum percentage, by which interest Term Structure of Interest RatesRelationship among interest rates on bonds with different terms to maturity. tiered interest rateA pre-set scale of interest which is based on the premise that higher sums of money earn higher rates of interest. AnticipationArrangements whereby customers who pay before the final date may be entitled to deduct a BondA long-term debt instrument in which the issuer (borrower) is Coupon rateIn bonds, notes or other fixed income securities, the stated percentage rate of interest, usually Coupon RateThe rate of interest paid on a debt security. Generally stated on an Discount RateThe rate of interest used to calculate the present value of a stream Immunization strategyA bond portfolio strategy whose goal is to eliminate the portfolio's risk against a Interest paymentsContractual debt payments based on the coupon rate of interest and the principal amount. Internal rate of return a. The average annual yield earned by an investment during the period held. LIBORThe London Interbank Offered rate; the rate of interest that major international banks in London Market clearingTotal demand for loans by borrowers equals total supply of loans from lenders. The market, Pay-upThe loss of cash resulting from a swap into higher price bonds or the need/willingness of a bank or present value (PV)the amount that one or more future cash prime rateThe rate of interest that Canadian financial institutions charge on Canadian dollar loans to certain customers. It is based on the rate established by the Bank of Canada. Typically, all financial institutions have the same prime rate. YieldThe percentage rate of return paid on a stock in the form of dividends, or the effective rate of interest Accelerated cost recovery system (ACRS)Schedule of depreciation rates allowed for tax purposes. Accelerated depreciationAny depreciation method that produces larger deductions for depreciation in the accelerated depreciation(1) The estimated useful life of the fixed asset being depreciated is Accelerated depreciationAny of several methods that recognize an increased amount Accounting rate of return (ARR)A method of investment appraisal that measures accounting rate of return (ARR)the rate of earnings obtained on the average capital investment over the life of a capital project; computed as average annual profits divided by average investment; not based on cash flow Accrued interestThe accumulated coupon interest earned but not yet paid to the seller of a bond by the Accrued InterestThe amount of interest accumulated on a debt security between Accrued InterestThe amount of interest owing but not paid. Active portfolio strategyA strategy that uses available information and forecasting techniques to seek a Adjustable rate preferred stock (ARPS)Publicly traded issues that may be collateralized by mortgages and MBSs. After-tax real rate of returnMoney after-tax rate of return minus the inflation rate. All equity rateThe discount rate that reflects only the business risks of a project and abstracts from the Annual percentage rate (APR)The periodic rate times the number of periods in a year. For example, a 5% annual percentage rate (APR)interest rate that is annualized using simple interest. Arithmetic average (mean) rate of returnArithmetic 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 rateTaxes as a fraction of income; total taxes divided by total taxable income. average tax rateTotal taxes owed divided by total income. Barbell strategyA strategy in which the maturities of the securities included in the portfolio are concentrated Basic business strategiesKey strategies a firm intends to pursue in carrying out its business plan. Best-interests-of-creditors testThe requirement that a claim holder voting against a plan of reorganization Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit CommitteesA committee formed in response to SEC chairman Arthur Levitt's initiative to improve the financial book rate of returnAccounting income divided by book value. Break-even payment rateThe prepayment rate of a MBS coupon that will produce the same CFY as that of Break-even tax rateThe tax rate at which a party to a prospective transaction is indifferent between entering Broker loan rateRelated: Call money rate. Bullet strategyA strategy in which a portfolio is constructed so that the maturities of its securities are highly Buy-and-hold strategyA passive investment strategy with no active buying and selling of stocks from the Call money rateAlso called the broker loan rate , the interest rate that banks charge brokers to finance Capitalization RateA discount rate used to find the present value of a series of future cash receipts. Sometimes called discount rate. Capitalized interestinterest that is not immediately expensed, but rather is considered as an asset and is then Capitalized Interestinterest incurred during the construction period on monies invested in cash burn rateA relatively recent term that refers to how fast a business Cash flow after interest and taxesNet income plus depreciation. Combination strategyA strategy in which a put and with the same strike price and expiration are either both compensation strategya foundation for the compensation plan that addresses the role compensation should play in the organization Compound interestinterest paid on previously earned interest as well as on the principal. Compound Interestinterest paid on principal and on interest earned in previous compound interesta 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 compound interestinterest earned on interest. Compound Interestinterest 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. computer integrated manufacturing (CIM)the integration of two or more flexible manufacturing systems through the use of a host computer and an information networking system confrontation strategyan organizational strategy in which company management decides to confront, rather than avoid, competition; an organizational strategy in which company management still attempts to differentiate company ConglomerateA firm engaged in two or more unrelated businesses.
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