Term
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Definition
| The return available within an economy from investment in a productive asset |
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Term
| time preference for consumption |
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Definition
| The preference of a consumer for current consumption as opposed to saving for future consumption |
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Term
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Definition
| The chance that a financial asset will not earn the return promised |
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Term
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Definition
| The tendency of prices to increase over time |
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Term
| nominal (quoted) risk-free rate, r(rf) |
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Definition
| The rate of interest on a security that is free of all risk; proxied by the T-bill rate or the T-bond rate and includes an inflation premium |
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Term
| Real risk-free rate of interest r* |
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Definition
| The rate of interest that would exist on default-free U.S treasury securities if no inflation were expected |
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Term
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Definition
| A premium for expected inflation that investors add to the real risk-free rate of return |
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Term
| Default risk premium (DRP) |
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Definition
| The difference between the interest rate on a U.S. Treasury bond an a corporate bond of equal maturity and marketability; compensation for the risk a corporation will not meet its debt obligations |
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Term
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Definition
| A premium added to the rate on a security if the security cannot be converted to cash on short notice at a price that close to the original cost |
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Term
| maturity risk premium (MRP) |
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Definition
| a premium that reflects interest rate risk; bonds with longer maturities have greater interest rate risk |
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Term
| term structure of interest rates |
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Definition
| The relationship between yields and maturities of securities |
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Term
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Definition
| A graph showing the relationship between yields and maturities of securities on a particular date |
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Term
| liquidity preference theory |
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Definition
| The theory that, all else being equal, lenders prefer to make short-term loans; hence they will lend short-term funds at lower rates than they lend long-term funds |
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Term
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Definition
| The theory that the shape of the yield curve depends on investors' expectations about future inflation rates |
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Term
| market segmentation theory |
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Definition
| the theory that every borrower and every lender has a preferred maturity, and that the slope of the yield curve depends on the supply of and the demand for funds in the long-term market relative to the short-term market |
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Term
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Definition
| Operations in which the federal reserve buys or sells treasury securities to expand or contract the U.S money supply |
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Term
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Definition
| A loan to a firm, government, or individual |
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Term
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Definition
| securities selling for less than par value |
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Term
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Definition
| discounted short-term debt issued by the U.S government |
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Term
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Definition
| An arrangement where one firm sells some of its financial assets to another firm with a promise to repurchase the securities at a later date |
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Term
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Definition
| Overnight Loans from one bank to another |
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Term
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Definition
| discounted instrument issued by a bank that obligates the bank to pay a specified amount at some future date |
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Term
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Definition
| A discounted instrument that a type of promissory note, or "legal IOU issued by large financially sound firms |
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Term
| certificate of deposit (CD) |
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Definition
| an interest-earning time deposit at a bank or other financial intermediary |
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Term
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Definition
| A deposit in a foreign bank that denominated in U.S dollars |
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Term
| money market mutual funds |
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Definition
| pools of fund managed by investment companies that are primarily invested in short-term financial assets |
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Term
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Definition
| A loan, generally obtained from a bank, on which the borrower agrees to make a series of payments consisting of interest and principal |
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Term
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Definition
| a long-term debt instrument |
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Term
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Definition
| Interest paid on a bond or other debt instrument stated as a percentage of its face value |
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Term
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Definition
| debts issued by a federal government |
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Term
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Definition
| bonds issued by a state or local government |
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Term
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Definition
| long-term debt instruments issued by corps. |
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Term
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Definition
| A bond backed by tangible assets. First-mortgage bonds are senior in priority to second mortgage bonds |
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Term
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Definition
| A long-term bond that is not secured by a mortgage on specific property |
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Term
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Definition
| A bond which in the event of liquidation has a claim on assets only after the senior debt has been paid off |
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Term
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Definition
| A bond that pays interest to the holder only if the interest is earned by a firm |
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Term
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Definition
| a bond that can be redeemed at the bondholders option when certain circumstances exist |
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