Social Interest Rates Flashcards
It is the rate of return. The cost of borrowing
Interest Rate
Is the kind of interest rate that is typically quoted on investments or the rate stated on loan contracts.
Nominal Interest Rate
Is the kind of interest rate that pertains to the rate adjusted for inflation
Real Interest Rate
Interest rates may be classified based on the organization offering a loan
Institution
Interest rates may also be distinguished based on the life or duration of the loan.
Short- term Interest Rates
Long- term Interest Rates
Interest rates may either be …….. or ……..
Fixed or Variable
The possibility of a loss resulting from the borrower’s failure to repay a loan or meet contractual obligations
Credit Risk of the Borrower
Refers to the group of credit ratings that imply a low default risk (from AAA to BBB-). Companies with a rating in this range will issue debt at a lower interest rate than others with a poorer credit rating, allowing them to obtain financing more cheaply.
Investment Grade
Is the risk that a lender takes on in the chance that a borrower will be unable to make the required payments on their debt obligation.
Default Risk of the Borrower
Loans with longer ages typically have higher interest rates
Maturity of a Loan
More liquid assets often get lower interest rate. Refers to the probability that a debtor or borrower cannot meet short term obligations.
Liquidity Risk
Refers to the availability of cash and other short- term assets that are easily convertible to cash.
Liquidity
Is a financial security that represents debt.
Bond
Bonds issued by public or private firms
Corporate Bonds
Bonds issued by the government
Treasury bonds or T- bonds
