Flashcards in Ch 5 - Interest Rate Deck (11)
effective annual rate (EAR) or annual percent- age yield (APY)
The total amount of interest that will be earned at the end of one year.
annual percentage rate (APR)
Indicates the amount of interest earned in one year without the effect of compounding.
Interest earned without the effect of compounding
A loan on which the borrower makes monthly payments that include interest on the loan plus some part of the loan balance.
nominal interest rates
Interest rates quoted by banks and other financial institutions that indicate the rate at which money will grow if invested for a certain period of time
real interest rate
The rate of growth of purchasing power after adjusting for inflation
The relationship between the investment term and the interest rate.
A plot of bond yields as a function of the bonds’ maturity date.
risk-free interest rate
The interest rate at which money can be borrowed or lent without risk over a given period.
federal funds rate
overnight loan rate charged by banks with excess reserves at a Federal Reserve bank (called federal funds ) to banks that need additional funds to meet reserve requirements.