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18 terms

Money and Banking Ch 4

CH 4
STUDY
PLAY
Cash Flows
different streams of cash payments to the holder with very different timing
Consol or Perpetuity
a perpetual bond with no maturity date and no repayment of principal that periodically makes fixed coupon payments of $V forever
Coupon Bond
the coupon payment is so named because the bondholder used to obtain payment by clipping a coupon off the bond and sending it to the bond issuer, who then sent the payment to the holder.
Coupon Rate
dollar amount of the yearly coupon payment expressed as a percentage of the face value of the bond.
Current Yield
the yearly coupon payment dividend by the price of the security
Discount Bond
(zero-coupon bond) is bought at a price below its face value (at a discount), and the face value is repaid at the maturity date
Face Value
(par value) , The principal amount of a bond, which will be paid off at maturity.
Fixed-Payment Loan
loan where 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
Indexed Bond
interest and principal payments are adjusted for changes in the price level
Interest-rate Risk
the riskiness of an asset's return that results from interest-rate changes
Nominal Interest Rate
interest rate that makes no allowance for inflation
Present Value or Present Discounted Value
based on the common sense notion that a dollar paid to you one year from now has less value to you than a dollar paid to you today
Rate of Capital Gain
the change in the bond's price relative to the initial purchase price
Real Interest Rate
interest rate that is adjusted by subtracting expected changes in the price level(inflation) so that it more accurately reflects the true cost of borrowing
Real Terms
in terms of real goods and services you can buy
Return (Rate of Returns)
how well a person does by holding a bond or any other security over a particular time period
Simple Loan
the simplest kind of debt instrument
Yield to Maturity
interest rate that equates the present value of cash flow payments received from a debt instrument with its value today