Group 1 PPT-Interest-Rates-and-their-role-in-valuation-BBM_202502081828_03806

Interest Rate

The opportunity cost of borrowing money; it helps determine the pricing of assets such as stocks and bonds.

Simple Interest Rate

Calculated using the formula I = P x R x T.

Simple Loan

A loan where the borrower receives a lump sum and agrees to repay the principal plus interest over a set period.

Fixed-Payment Loan

A loan where the borrower makes fixed payments over the loan's life to fully pay off the loan by its end.

Coupon Bond

A debt security that pays fixed interest payments at regular intervals until maturity.

Discount Bond

Issued for less than its face value; the investor's return comes from the price difference and face value at maturity.

Yield to Maturity

The total return anticipated on a bond if held until it matures.

Nominal Interest Rate

The stated interest rate on a loan or investment, representing the rate of revenue during loan acquisition.

Real Interest Rate

The nominal interest rate adjusted for inflation, reflecting the true purchasing power of the interest earned.

Rate of Return

Payments to the owner plus changes in value, expressed as a fraction of the purchase price.

Current Yield

The annual income (interest or dividends) divided by the current price of the security.

Capital Gain

The profit from the sale of an asset, calculated as the selling price minus the purchase price.

Interest-Rate Risk

The risk that changes in interest rates will affect the value of an asset.

Reinvestment Risk

The risk that an investor will have to reinvest cash flows at lower interest rates than the original investment.