Ch 5 - Interest Rate Flashcards Preview

MOS 2310: Finance > Ch 5 - Interest Rate > Flashcards

Flashcards in Ch 5 - Interest Rate Deck (11)
Loading flashcards...
1
Q

effective annual rate (EAR) or annual percent- age yield (APY)

A

The total amount of interest that will be earned at the end of one year.

2
Q

annual percentage rate (APR)

A

Indicates the amount of interest earned in one year without the effect of compounding.

3
Q

simple interest

A

Interest earned without the effect of compounding

4
Q

amortizing loan

A

A loan on which the borrower makes monthly payments that include interest on the loan plus some part of the loan balance.

5
Q

nominal interest rates

A

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

6
Q

real interest rate

A

The rate of growth of purchasing power after adjusting for inflation

7
Q

term structure

A

The relationship between the investment term and the interest rate.

8
Q

yield curve

A

A plot of bond yields as a function of the bonds’ maturity date.

9
Q

risk-free interest rate

A

The interest rate at which money can be borrowed or lent without risk over a given period.

10
Q

federal funds rate

A

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.

11
Q

opportunity cost of capital or cost of capital

A

The best available expected return offered in the market on an investment of comparable risk and term to the cash flow being dis- counted; the return the investor forgoes on an alternative investment of equivalent risk and term when the investor takes on a new investment.