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Riskless rate |
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Definition of Riskless rateRiskless rateThe rate earned on a riskless investment, typically the rate earned on the 90-day U.S. Treasury Bill.
Related Terms:Riskless rate of returnThe rate earned on a riskless asset. Excess return on the market portfolioThe difference between the return on the market portfolio and the Implied volatilityThe expected volatility in a stock's return derived from its option price, maturity date, Risk-free RateThe rate of return on an investment with known future benefits; a 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. 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 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 Amortizing interest rate swapSwap in which the principal or national amount rises (falls) as interest rates 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 Base interest rateRelated: Benchmark interest rate. Basic business strategiesKey strategies a firm intends to pursue in carrying out its business plan. Benchmark interest rateAlso called the base interest rate, it is the minimum interest rate investors will 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 Combination strategyA strategy in which a put and with the same strike price and expiration are either both 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 Coupon rateIn bonds, notes or other fixed income securities, the stated percentage rate of interest, usually Covered call writing strategyA strategy that involves writing a call option on securities that the investor 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. Discount rateThe interest rate that the Federal Reserve charges a bank to borrow funds when a bank is Dividend rateThe fixed or floating rate paid on preferred stock based on par value. Dollar-weighted rate of returnAlso called the internal rate of return, the interest rate that will make the Effective annual interest rateAn annual measure of the time value of money that fully reflects the effects of Effective rateA measure of the time value of money that fully reflects the effects of compounding. Equilibrium rate of interestThe interest rate that clears the market. Also called the market-clearing interest Exchange rateThe 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 riskAlso called currency risk, the risk of an investment's value changing because of currency Federal funds rateThis is the interest rate that banks with excess reserves at a Federal Reserve district bank Fixed-exchange rateA country's decision to tie the value of its currency to another country's currency, gold Fixed-rate loanA loan on which the rate paid by the borrower is fixed for the life of the loan. Fixed-rate payerIn an interest rate swap the counterparty who pays a fixed rate, usually in exchange for a Floating exchange rateA country's decision to allow its currency value to freely change. The currency is not Floating-rate contractA 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. Floating-rate payerIn an interest rate swap, the counterparty who pays a rate based on a reference rate, Floating-rate preferredPreferred stock paying dividends that vary with short-term interest rates. Forward exchange rateExchange rate fixed today for exchanging currency at some future date. Forward interest rateInterest rate fixed today on a loan to be made at some future date. Forward rateA 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 Growth ratesCompound annual growth rate for the number of full fiscal years shown. If there is a negative Historical exchange rateAn accounting term that refers to the exchange rate in effect when an asset or Hurdle rateThe required return in capital budgeting. Immunization strategyA bond portfolio strategy whose goal is to eliminate the portfolio's risk against a Implied repo rateThe rate that a seller of a futures contract can earn by buying an issue and then delivering Import-substitution development strategyA development strategy followed by many Latin American Incremental internal rate of returnIRR on the incremental investment from choosing a large project 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 Internal growth rateMaximum rate a firm can expand without outside source of funding. Growth generated Internal rate of returnDollar-weighted rate of return. Discount rate at which net present value (NPV) Inverse floating rate noteA variable rate security whose coupon rate increases as a benchmark interest rate declines. Ladder strategyA bond portfolio strategy in which the portfolio is constructed to have approximately equal Lease RateThe payment per period stated in a lease contract. Liability funding strategiesInvestment strategies that select assets so that cash flows will equal or exceed Lease RateThe payment per period stated in a lease contract. Marginal tax rateThe tax rate that would have to be paid on any additional dollars of taxable income earned. Market capitalization rateExpected return on a security. The market-consensus estimate of the appropriate Money rate of returnAnnual money return as a percentage of asset value. Mortgage rateThe interest rate on a mortgage loan. Multiple rates of returnMore than one rate of return from the same project that make the net present value Naked option strategiesAn unhedged strategy making exclusive use of one of the following: Long call Nominal annual rateAn effective rate per period multiplied by the number of periods in a year. Nominal exchange rateThe actual foreign exchange quotation in contrast to the real exchange rate that has
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