discounting |
the compound reduction from FV to PV |

compounding |
the earning of interest on interest |

compound interest |
interest earned in subsequent periods on the interest earned in previous periods |

lump-sum payment |
one time payment at a PV or FV |

TVM |
key value that a dollar today is worth more than a dollar tomorrow |

amortization schedule |
listing of periodic interest expense, reduction in principal each period, ending balance for each period |

amortized loan |
loan in which interest and principal is paid each period |

annuity |
series of equal cash flows at regular intervals across time |

annuity due |
series of equal & regular pmts at the beginning of a period |

console (perpetual bonds) |
stocks that pay interest forever, no maturity date, no promise to pay principal |

discount loan |
loan where interest & principal is repaid at maturity |

interest only loan |
loan where interest is paid regularly. principal & final interest is paid at date due. |

perpetuity |
infinite regular & equal pmts |

APR |
yearly uncompounded rate of interest |

EAR (effective annual rate) |
compound rate of interest per year |

compounding period |
period in which interest is applied |

fisher effect |
relationship which nominal interest rate is a function of the real rate, inflation, and product of inflation and real rate |

maturity premium |
the portion of the nominal interest rate that compensates the investor for additional waiting time to receive payment in full |

nominal interest rate |
interest rate composed of real interest rate plus the inflation rate |

periodic interest rate |
the number of compounding periods per year |

real interest rate |
the reward for waiting |

reward for waiting |
real rate of interest paid for forgoing use of money today. |

risk free rate |
theoretical interest rate with zero risk of any kind |

yield curve |
graph relating return rate and an asset's time to maturity |

basis point |
one hundredth of a percentage point |

bearer bond |
bond where ownership to the possessor |

Bone equivalent yield (BEY) |
annual % rate converted from bank discount rate on a treasury bill |

callable bond |
bond that issuer has the right to buy back prior to maturity at a predetermined price |

convertible bond |
right to swap bond for another asset, usually common stock, at a preset conversion ratio under certain conditions |

corpus |
bond with the coupons clipped off representing only principal |

coupon |
regular interest pmt of bond |

current yield |
annual bond coupon pmt divided by current price |

debentures |
unsecured bonds |

floating rate bond |
bond with changing coupon rate |

indenture |
formal contract of a bond detailing important information |

junor debt |
debt subsequent to the other (senior) debt with lower priority of pmt |

par value |
principal amount to be paid at the maturity date |

premium bond |
bond that current value is above par value |

prime rate |
interest rate banks charge their best customers |

protective covenant |
part of the bond that spells out both required and prohibited actions of the bond issuer |

putable bond |
bond holder has the right to sell the bond back to the issuer at a determined price prior to maturity |

sinking fund |
special fund for the retirement of debt on bonds |

STRIPS |
zero-coupon bonds made by separating the interest and principal on us. govt bonds |

treasury bill |
govt bond with a maturity less than one year |

treasury bond |
govt bond with maturity of more than ten years |

treasury note |
govt bond with a maturity between 2 and 10 years |

yield to call |
discount rate of return for a callable premium bond |

yield to maturity (YTM) |
return the holder receives if held on till maturity |

zero-coupon bond |
a bond that pays no coupons over its maturity |

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