Term
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Definition
| Different debt instruments have very different streams of cash payments to the holder with different timing |
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Term
| Present Value/ Present Discounted Value |
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Definition
| Based on commonsense notion that a dollar paid to you one year from now is less valuable to you than a dollar paid to you today |
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Term
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Definition
| The lender provides the borrower with an amount of funds (principal) that must be repaid to the lender at the maturity date, along with an additional payment of interest |
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Term
| Fixed-payment loan (fully amortized loan) |
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Definition
| the lender provides the borrower with an amount of funds, which must be repaid by making the same payment every period (such as a month), consisting of part of the principal and interest for a set number of years |
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Term
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Definition
| pays the owner of the bond a fixed interest payment (coupon payment) every year until the maturity date , when a specified final amount (face value or par value) is repaid |
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Term
| Discount bond/ Zero-Coupon Bond |
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Definition
| is bought at a price below its face value (at a discount) and the face value is repaid at the maturity date |
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Term
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Definition
| the interest rate that equates the present value of cash flow payments received from a debt, instrument with its value today |
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Term
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Definition
| the simple interest rate equals the yeild to maturity |
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Term
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Definition
| It is a perpetual bond with no maturity date and no repayment of principal that makes fixed coupon payments of $C (yearly coupon pmts) forever |
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Term
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Definition
| The yearly coupon payment divided by the price of the security and is frequently used as an approximation to describe interest rates on long-term bonds |
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Term
| How are current bond prices and interest rates related? |
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Definition
| Negatively related: when the interest rate rises, the price of the bond falls, and vice versa |
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Term
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Definition
| how well a person does by holding a bond or any other security over a particular time period is accurately measured |
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Term
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Definition
| the return on a bond will not necessarily equal the yeild to maturity on that bond |
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Term
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Definition
| the change in the bond's price relative to the initial purchase price |
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Term
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Definition
| the riskiness of an assets return that results from interest-rate changes is so important that it has been given a special name |
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Term
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Definition
| what we have up to now been calling the interest rate makes no allowance for inflation |
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Term
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Definition
| The interest rate that is adjusted by subtracting expected changes in the price level (inflation) so that it more accurately reflects the true costs of borrowing |
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Term
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Definition
| in terms of real goods and services you can buy |
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Term
| When real interest rate is low, |
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Definition
| there are greater incentives to borrow and fewer incentives to lend |
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Term
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Definition
| whose interest and principal payments are adjusted for changes in the prive level |
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