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Definition of Interest Rate
Cost of using money, expressed as a rate per period of time, usually one year.
rate charged or paid for the use of money, normally expressed as a percentage
Swap in which the principal or national amount rises (falls) as interest rates
Related: Benchmark interest rate.
Also called the base interest rate, it is the minimum interest rate investors will
An annual measure of the time value of money that fully reflects the effects of
interest rate that is annualized using compound interest.
The rate of interest actually earned on an investment. It is
A rate that does not fluctuate with general market conditions.
A rate that fluctuates with general market condition.
interest rate fixed today on a loan to be made at some future date.
An agreement whereby one party, for an upfront premium, agrees to compensate the
Also called an interest rate ceiling, an interest rate agreement in which payments are made
Related: interest rate cap.
The interest rate on our financial assets minus the interest rate on a foreign country's financial assets.
An interest rate agreement in which payments are made when the reference rate falls
Payment for the use of borrowed funds, measured as a percentage per year of these funds.
Interest rate on debt
The firm's cost of debt capital.
interest rate parity
Theory that forward premium equals interest rate differential.
Interest Rate Parity
Theory that real interest rates are approximately the same across countries except for a risk premium.
Interest rate parity theorem
interest rate differential between two countries is equal to the difference
Interest Rate, Real
Nominal interest rate less expected inflation.
Interest rate risk
The risk that a security's value changes due to a change in interest rates. For example, a
Interest Rate Risk
Possibility that interest rates will rise during the term of a loan thereby increasing the annual cost of borrowing.
Interest rate swap
A binding agreement between counterparties to exchange periodic interest payments on
Nominal interest rate
The interest rate unadjusted for inflation.
Nominal Interest Rate
The rate of interest quoted, or stated, to be paid on a security
nominal interest rate
rate at which money invested grows.
Nominal Interest Rate
The contracted, or stated, interest rate, undeflated for price level changes.
Real interest rate
The rate of interest excluding the effect of inflation; that is, the rate that is earned in terms
Real Interest Rate
The rate of interest paid on an investment adjusted for inflation
real interest rate
rate at which the purchasing power of an investment increases.
Spot interest rate
interest rate fixed today on a loan that is made today. Related: forward interest rates.
Stated annual interest rate
The interest rate expressed as a per annum percentage, by which interest
Term Structure of Interest Rates
Relationship among interest rates on bonds with different terms to maturity.
tiered interest rate
A pre-set scale of interest which is based on the premise that higher sums of money earn higher rates of interest.
Equilibrium rate of interest
The interest rate that clears the market. Also called the market-clearing interest
Money Rate of Interest
See interest rate, nominal.
Rate of interest
The rate, as a proportion of the principal, at which interest is computed.
Real Rate of Interest
See interest rate, real.
annual percentage rate (APR)
interest rate that is annualized using simple interest.
Adjustable rate mortgage. A mortgage that features predetermined adjustments of the loan interest rate
An interest rate swap used to alter the cash flow characteristics of an institution's assets so as to
The average time to maturity of securities held by a mutual fund. Changes in interest rates
In the bond market, the smallest measure used for quoting yields is a basis point. Each percentage
The first complete mathematical model for pricing
Black-Scholes option-pricing model
A model for pricing call options based on arbitrage arguments that uses
A system that monitors and evaluates the performance of a fixed-income portfolio , as well as the
Book yield is the investment income earned in a year on a portfolio of assets purchased over a number of years and at different interest rates, divided by the book value of those assets.
Call money rate
Also called the broker loan rate , the interest rate that banks charge brokers to finance
An upper limit on the interest rate on a floating-rate note.
An upper and lower limit on the interest rate on a floating-rate note.
interest-rate option that guarantees that the rate on a floating-rate
Are debt instruments that are convertible into common or preferred shares, take secondary or no security against assets, have flexible terms of repayment and charge fixed or floating interest rates.
Cost of funds
interest rate associated with borrowing money.
The parties to an interest rate swap.
The nominal interest rate that the issuer promises to pay the
Restriction of loans by lenders so that not all borrowers willing to pay the current interest rate are able to obtain loans.
The interest rate offered on an investment type insurance policy.
The options available to the seller of an interest rate futures contract, including the quality
The interest rate that the Federal Reserve charges a bank to borrow funds when a bank is
interest rate used to compute present values of future cash flows.
The interest rate at which the Fed is prepared to loan reserves to commercial banks.
Discounted payback period rule
An investment decision rule in which the cash flows are discounted at an
Dollar-weighted rate of return
Also called the internal rate of return, the interest rate that will make the
An arrangement whereby the interest rate on a floating rate note or preferred stock becomes fixed
A common gauge of the price sensitivity of an asset or portfolio to a change in interest rates.
The expected life of a fixed-income security considering its coupon
Effective annual yield
Annualized interest rate on a security computed using compound interest techniques.
In an interest rate swap, the date the swap begins accruing interest.
The duration calculated using the approximate duration formula for a bond with an
Effective margin (EM)
Used with SAT performance measures, the amount equaling the net earned spread, or
A swap in which the cash flows that are exchanged are based on the total return on some stock
Expectations hypothesis theories
Theories of the term structure of interest rates which include the pure
Federal funds rate
This is the interest rate that banks with excess reserves at a Federal Reserve district bank
Federal Funds Rate
The interest rate at which banks lend deposits at the Federal Reserve to one another overnight.
Federal Reserve (the Fed)
The central bank in the United States, responsible for setting interest rates.
The equity (ownership) capital of a business can serve
A theory that nominal interest rates in two or more countries should be equal to the required real
Fixed Rate Loan
Loan for a fixed period of time with a fixed interest rate for the life of the loan.
In an interest rate swap the counterparty who pays a fixed rate, usually in exchange for a
A guaranteed investment contract where the credit rating is tied to some variable
Floating-rate note (FRN)
Note whose interest payment varies with short-term interest rates.
In an interest rate swap, the counterparty who pays a rate based on a reference rate,
Preferred stock paying dividends that vary with short-term interest rates.
Security paying dividends or interest that vary with short-term interest rates.
interest-rate option that guarantees that the rate on a floating-rate
A projection of future interest rates calculated from either the spot rates or the yield curve.
The future interest rate of a bond inferred from the term
Forward rate agreement (FRA)
Agreement to borrow or lend at a specified future date at an interest rate
Security analysis that seeks to detect misvalued securities by an analysis of the firm's
Related: interest rate risk
the amount to which one or more sums of
The amount to which a payment or series of payments will grow by a given future date when compounded by a given interest rate. FVIF future value interest factor.
Mortgage-backed securities (MBS) on which registered holders receive an aggregate principal and
Guaranteed insurance contract
A contract promising a stated nominal interest rate over some specific time
A portfolio consisting of the long position in the stock and the short position in the call
Money that moves across country borders in response to interest rate differences and that moves
The fact that future inflation rates are not known. It is a possible contributing factor to
spread The spread between the interest rate offered in two sectors of the bond market for
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