Chapter 7 Fixed-Income Securities: Pricing and Trading KT Flashcards
The current worth of a sum of money that will be received sometime in the future.
present value
Interest accumulated on a bond or debenture since the last interest payment date.
accrued interest
Yield curve theory proposing that supply and demand of large institutions shapes the yield curve with banks preferring to borrow short term while other institutions prefer long-term money.
market segmentation theory
The rate used in calculating the present value of future cash flows when computing the value of a bond.
discount rate
A theory stating that the yield curve is shaped by a market consensus about future interest rates.
expectations theory
The quoted or stated rate, such as the quoted or stated rate on an investment or a loan. This rate allows for comparisons but does not account for the effects of inflation.
nominal rate
The annual income from an investment expressed as a percentage of the investment’s current value.
current yield
The approximate percentage change in the price or value of a bond or bond portfolio for a 1% change in interest rates. Used as a measure of bond price volatility.
duration
A graph showing the relationship between yields of bonds of the same quality but different maturities.
yield curve
A theory that explains the shape of the yield curve by postulating that in order to entice investors to invest long-term, borrowers must offer higher rates for longer-term money.
liquidity preference theory
The risk that interest rates will fall causing the cash flows on an investment, assuming that the cash flows are reinvested, to earn less than the original investment.
reinvestment risk
A rate of return adjusted for the effects of inflation.
real rate of return
