|Term Structure of Interest Rates|
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Definition of Term Structure of Interest Rates
Term Structure of Interest Rates
Relationship among interest rates on bonds with different terms to maturity.
Theories of the term structure of interest rates which include the pure
The fact that future inflation rates are not known. It is a possible contributing factor to
A repurchase agreement with a term of more than one day.
A curve derived from theoretical considerations as applied to the yields of
The graphical depiction of the relationship between the yield on bonds of the same credit quality
The accumulated coupon interest earned but not yet paid to the seller of a bond by the
The amount of interest accumulated on a debt security between
The amount of interest owing but not paid.
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
The makeup of the liabilities and stockholders' equity side of the balance sheet, especially
The combination of debt, preferred stock, and common stock used
Firm’s mix of long-term financing.
The mix of the various types of debt and equity capital maintained by a firm. The more debt capital a firm has in its capital structure, the more highly leveraged the firm is considered to be.
capital structure, or capitalization
terms that refer to the combination of
interest that is not immediately expensed, but rather is considered as an asset and is then
interest incurred during the construction period on monies invested in
Cash flow after interest and taxes
Net income plus depreciation.
Coefficient of determination
A measure of the goodness of fit of the relationship between the dependent and
coefficient of determination
a measure of dispersion that
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.
the relative composition of an organization’s
Covered interest arbitrage
A portfolio manager invests dollars in an instrument denominated in a foreign
Conditions under which credit is extended by a lender to a borrower.
The exchange rate between two currencies expressed as the ratio of two foreign exchange rates
Daily Interest Accumulation
Account in which interest is accrued daily and credited to the account at the end of a specified time.
Liability-matching models that assume that the liability payments and the asset cash
Withdrawal of funds from a financial institution in order to invest them directly.
earnings before interest and income tax (EBIT)
A measure of profit that
Earnings before interest and taxes (EBIT)
A financial measure defined as revenues less cost of goods sold
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.
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
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.
Effective Interest Rate
The rate of interest actually earned on an investment. It is
Equilibrium rate of interest
The interest rate that clears the market. Also called the market-clearing interest
Euro-medium term note (Euro-MTN)
A non-underwritten Euronote issued directly to the market. Euro-
expectations theory of exchange rates
Theory that expected spot exchange rate equals the forward rate.
Institutions that provide the market function of matching borrowers and lenders or
Firm that raises money from many small investors and provides financing to businesses or other
Any institution, such as a bank, that takes deposits from savers and loans them to borrowers.
The process whereby financial intermediaries channel funds from lender/savers to borrower/spenders.
Fixed Interest Rate
A rate that does not fluctuate with general market conditions.
Optional periods of time which the conditions of a contract will be carried out.
Floating Interest Rate
A rate that fluctuates with general market condition.
Forward interest rate
interest rate fixed today on a loan to be made at some future date.
fractional interest discount
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.
interest earned before taxes are deducted.
Compound annual growth rate for the number of full fiscal years shown. If there is a negative
Guaranteed Interest Annuity (GIA)
interest bearing investment with fixed rate and term.
Guaranteed Interest Certificate (GIC)
interest bearing investment with fixed rate and term.
Basic facilities, such as transportation, communication, and legal systems, on which economic activity depends.
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 price paid for borrowing money. It is expressed as a percentage rate over a period of time and
The cost of money, received on investments or paid on borrowings.
The cost of funds loaned to an entity. It can also refer to the equity ownership
A charge for the use of money supplied by a lender.
The cost of a loan or the compensation paid for the use of money. For example, you are paid interest for deposits you make into a savings account, and you pay interest for money that you borrow from a low-cost borrowing account.
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.
Numbers found in compound interest and annuity tables. Usually called the FVIF or PVIF.
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.
Interest on interest
interest earned on reinvestment of each interest payment on money invested.
Interest-only strip (IO)
A security based solely on the interest payments form a pool of mortgages, Treasury
One of several investment accounts in which your premiums may be invested within your life insurance policy.
The amount of interest that is owed but has not been paid at the end of a period.
Contractual debt payments based on the coupon rate of interest and the principal amount.
Cost of using money, expressed as a rate per period of time, usually one year.
Rate charged or paid for the use of money, normally expressed as a percentage
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 Differential
The interest rate on our financial assets minus the interest rate on a foreign country's financial assets.
Interest rate floor
An interest rate agreement in which payments are made when the reference rate falls
Interest Rate, Nominal
Payment for the use of borrowed funds, measured as a percentage per year of these funds.
Interest rate on debt
The firm's cost of debt capital.
interest rate parity
Theory that forward premium equals interest rate differential.
Interest Rate Parity
Theory that real interest rates are approximately the same across countries except for a risk premium.
Interest rate parity theorem
interest rate differential between two countries is equal to the difference
Interest Rate, Real
Nominal interest rate less expected inflation.
Interest rate risk
The risk that a security's value changes due to a change in interest rates. For example, a
Interest Rate Risk
Possibility that interest rates will rise during the term of a loan thereby increasing the annual cost of borrowing.
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.
interest tax shield
Tax savings resulting from deductibility of interest payments.
spread The spread between the interest rate offered in two sectors of the bond market for
Intermarket spread swaps
An exchange of one bond for another based on the manager's projection of a
An independent third party that may act as a mediator during negotiations.
A good used in producing another good.
Typically 1-10 years.
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