Unit 3. Interest Rates

nominal interest rate

the amount, in money terms, of interest payable.

real interest rate

measures the purchasing power of interest receipts, is calculated by adjusting the nominal rate charged to take inflation into account.

Coupon rate

is the yield paid by a fixed income security. The ___ is the yield the bond paid on its issue date. This yield, however, will change as the value of the bond changes, thus giving the bond's yield to maturity.

Yield To Maturity

is the interest rate that equates the present value of future payments of a debt instrument with the instrument‘s value today.

The return on a security

which tells you how well you have done by holding the security over a stated period of time, can differ substantially from the interest rate as measured by the yield to maturity.

Capital gain

refers to an increase in a capital asset's value and is considered to be realized when the asset is sold. A … may be short-term (one year or less) or long-term (more than one year) and must be claimed on income taxes.

Dividend

is the distribution of some of a company's earnings to a class of its shareholders, as determined by the company's board of directors. ___are payments made by publicly-listed companies as a reward to investors for putting their money into the venture.

mortgage

A loan to buy a house or property

default

Not pay back a loan

funds

Money

variable

Changes over time

co-sign

Guarantee a loan for somebody else

cash advance

Money that you borrow on a credit card

credit rating

An opinion on how well you can pay back a loan

credit evaluation

A check to see how well you can pay back a loan.

credit limit

The maximum you can borrow

savings

A bank account you use to save money

chequing

A bank account you use for day to day expenditures

interest

The cost of borrowing money.

net income

Your income after you pay income taxes and expenses

gross income

Your income before you pay taxes

prime

The basic interest rate that banks use

repayment mortgage

You pay the capital sum and the interest

interest-only mortgage

You pay the interest in installments, and you pay the capital sum by another method.

endowment mortgage

An interest-only mortgage, with the capital repaid by an endowment

offset mortgage

Your current and mortgage accounts are combined to reduce the interest.

fixed rate mortgage

The mortgage interest rate stays the same

base-rate tracker mortgage

The mortgage interest rate is linked to the interest rate of country's central bank

variable rate mortgage

The mortgage lender can change the interest rate as they wish

capped mortgage

The mortgage interest rate can only rise as far as a certain level

discount bond

is bought at a price below its face value, and the face value is repaid at the maturity date

coupon bond

pays the owner of the bond a fixed interest payment (coupon payment) every year until the maturity date, when a specified final amount (face value or par value) is repaid.

base rate

commercial banks’ lending rate for their most secure customers

overdraft

occasionally borrowing money by spending more than you have in the bank