Chapter 8 Flashcards
Interest Rate
Price borrowers pay in order to consume at the present
Direct Finance
When a borrower deals directly with a lender
Maturity
The date that a payment will be made to a lender
Face Value
Value Paid at Maturity
Zero Coupon Bond
A bond in which the seller pays no interest payments
Coupon Rate
interest rate quoted on a bond
Indirect Finance
borrowing and lending with a middleman
Usury Law
puts a price ceiling on interest in rates, causes shortages in loanable funds
indirect crowding out
an increase in gov spending is financed by borrowing, private spending is decreased due to high interest rates
direct crowding out
private markets spending less because their ability to spend is taxed away
Leveraged Buyout
where a firm borrows in order to purchase another firm, then immediately sells the firm
insolvent
when a firm owes more than it owns
illiquid
when a firm cant pay it’s immediate obligations
absolute priority rule
creditors pay back lenders from by rank of who lent to them first. oldest bondholders first stockholders last
Community Reinvestment act
forced banks to loan to poor people who couldnt pay
