Money and Banking - Chapter 4 - Definitions
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Created by:
stickingplaster on April 19, 2012
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17 terms
Terms | Definitions |
|---|---|
 cash flows | Streams of cash payments to the holder of a debt instrument |
| simple loan | Lender provides the borrower with an amount of funds that must be repaid to the lender at the maturity date, along with an additional payment for the interest. |
| fixed-payment loan (fully amortized loan) | Lender provides the borrower with an amount of funds, which must be repaid by making the same payment every period consisting of part of the principal and interest for a set number of years. |
| coupon bond | An instrument that pays the owner of the bond a fixed interest payment every year until the maturity date, when a specified final amount is repaid. |
| face value (par value) | Specified final amount to be paid on a coupon bond. |
| coupon rate | The dollar amount of the yearly coupon payment, expressed as a percentage of the face value of the bond. |
| discount bond (zero-coupon bond) | An instrument bought at a price below its face value, and the face value is repaid at the maturity date. |
| yield to maturity | The interest rate that equates the present value of cash flow payments received from a debt instrument with its value today. |
| consol (perpetuity) | It is a perpetual bond with no maturity date and no repayment of principal that makes fixed coupon payments of $C forever. |
| current yield | The yearly coupon payment divided by the price of the security. |
| rate of return (return) | How well a person does by holding a bond or any other security over a particular time period. |
| rate of capital gain | The change in the bond's price relative to the initial purchase price. |
| interest-rate risk | The riskiness of an asset's return that results from interest-rate changes. |
| real interest rate | The interest rate that is adjusted by subtracting expected changes in the price level so that it more accurately reflects the true cost of borrowing. |
| nominal interest rate | The interest rate, unadjusted for inflation. |
| real terms | In terms of the real goods and services you can buy. |
| indexed bonds | An instrument whose interest and principal payments are adjusted for changes in the price level. |
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