Interest Rate Flashcards
Interest Rate
cost of borrowing money or the return on lending money, affects ROI
Principle #6 : Rate of Time Preference
Other things equal, people always prefer a good today rather than in the future
Discounting
deduct an amount from (the usual price of something).
Discount Rate
the rate of return used to discount future cash flows back to their present value.
Investment Productivity
Investment productivity measures the efficiency of investment generated returns.
Future Value
agree on contract today to deliver a certain quantity at a given price in the future
Present Value
PV = FV/(1 + i) (PV of a lump sum)
Stream of Payoffs (income)
financial return or reward (especially returns equal to the initial investment)
Income
flow of dollars from a stock of capital
Assets
anything of value that can be converted into cash—it includes things like cash itself, real estate holdings, investments, and personal property.
Wealth
Assets - liabilities + the PV of the future income stream
Liability
Rate of Return
Rate of Return & Interest Rate in Equilibrium
Differences in Rates of Financial Returns
Equilibrium Interest Rate
Nominal Interest Rate
Real Interest Rate
High Investment Productivity
leads to higher economic growth and higher living standards, produces more goods and services, leads to lower costs and higher profits.
Low Investment Productivity
leads to slower economic growth and lower living standards, less return on investments.
