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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 Forward interest rateinterest rate fixed today on a loan to be made at some future date. 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 floorAn interest rate agreement in which payments are made when the reference rate falls Interest rate on debtThe firm's cost of debt capital. Interest rate parity theoreminterest rate differential between two countries is equal to the difference Interest rate riskThe risk that a security's value changes due to a change in interest rates. For example, a Interest rate swapA binding agreement between counterparties to exchange periodic interest payments on Nominal interest rateThe interest rate unadjusted for inflation. Real interest rateThe rate of interest excluding the effect of inflation; that is, the rate that is earned in terms 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 Effective Interest RateThe rate of interest actually earned on an investment. It is Nominal Interest RateThe rate of interest quoted, or stated, to be paid on a security Real Interest RateThe rate of interest paid on an investment adjusted for inflation effective annual interest rateinterest rate that is annualized using compound interest. interest rate parityTheory that forward premium equals interest rate differential. nominal interest raterate at which money invested grows. real interest raterate at which the purchasing power of an investment increases. Interest Rate DifferentialThe interest rate on our financial assets minus the interest rate on a foreign country's financial assets. Interest Rate, NominalPayment for the use of borrowed funds, measured as a percentage per year of these funds. Interest Rate ParityTheory that real interest rates are approximately the same across countries except for a risk premium. Interest Rate, RealNominal interest rate less expected inflation. Term Structure of Interest RatesRelationship among interest rates on bonds with different terms to maturity. Fixed Interest RateA rate that does not fluctuate with general market conditions. Floating Interest RateA rate that fluctuates with general market condition. Interest RateCost of using money, expressed as a rate per period of time, usually one year. Interest Rate RiskPossibility that interest rates will rise during the term of a loan thereby increasing the annual cost of borrowing. Nominal Interest RateThe contracted, or stated, interest rate, undeflated for price level changes. tiered interest rateA pre-set scale of interest which is based on the premise that higher sums of money earn higher rates of interest. Interest Raterate charged or paid for the use of money, normally expressed as a percentage AnticipationArrangements whereby customers who pay before the final date may be entitled to deduct a Coupon rateIn bonds, notes or other fixed income securities, the stated percentage rate of interest, usually 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. 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 YieldThe percentage rate of return paid on a stock in the form of dividends, or the effective rate of interest BondA long-term debt instrument in which the issuer (borrower) is 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 present value (PV)the amount that one or more future cash Internal rate of return a. The average annual yield earned by an investment during the period held. 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. discount ratethe 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. fractional interest discountthe 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. 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 Accrued interestThe accumulated coupon interest earned but not yet paid to the seller of a bond by the 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% 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. 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 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 Capitalized interestinterest that is not immediately expensed, but rather is considered as an asset and is then 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 Compound interestinterest paid on previously earned interest as well as on the principal. ConglomerateA firm engaged in two or more unrelated businesses. Conglomerate mergerA merger involving two or more firms that are in unrelated businesses. Corporate acquisitionThe acquisition of one firm by anther firm. Corporate bondsDebt obligations issued by corporations. Corporate charterA legal document creating a corporation. Corporate financeOne of the three areas of the discipline of finance. It deals with the operation of the firm Corporate financial managementThe application of financial principals within a corporation to create and Corporate financial planningFinancial planning conducted by a firm that encompasses preparation of both Corporate processing floatThe time that elapses between receipt of payment from a customer and the Corporate tax viewThe argument that double (corporate and individual) taxation of equity returns makes Corporate taxable equivalentrate of return required on a par bond to produce the same after-tax yield to Covered call writing strategyA strategy that involves writing a call option on securities that the investor Covered interest arbitrageA portfolio manager invests dollars in an instrument denominated in a foreign Covered or hedge option strategiesStrategies that involve a position in an option as well as a position in the Crediting rateThe interest rate offered on an investment type insurance policy. Cross ratesThe exchange rate between two currencies expressed as the ratio of two foreign exchange rates Crossover rateThe return at which two alternative projects have the same net present value. Current rate methodUnder this currency translation method, all foreign currency balance-sheet and income Dedication strategyRefers to multi-period cash flow matching.
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