Term
| 2 Ways in Which companies raise capital |
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Definition
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Term
| 4 Fundamental factors influencing the Cost of Money: |
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Definition
1.Production Opportunities
2. Time Preferences for Consumption
3. Risk
4. Inflation |
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Term
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Definition
| The Investment opportunities in productive (Cash Generating) Assets |
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Term
| Time Preferences for Consumption |
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Definition
| The preferences of Consumers for Current consumption as opposed to saving for future consumption |
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Term
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Definition
| In a financial Market context, the chance that an investment will provide a low or negative return |
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Term
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Definition
| The amount by which prices increase over time |
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Term
| Current Real Rate of Interest |
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Definition
| The current interest rate minus the current inflation rate (The gap between the inflation bars and the interest rate curve) |
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Term
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Definition
| Real Risk-Free rate, r*, plus several premiums that reflect inflation, the security's risk, its liquidity (or marketability) and the years to its maturity |
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Term
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Definition
r = r* + IP + DRP + LP + MRP
r= the quoted or nominal rate of interest on a given security
r*= the real rate of interest, "r star." It is the rate that would exist on a riskless security in a world where no inflation was expected.
IP= Inflation premium;
DRP= Default Risk premium
LP=Liquidity or Marketability premium
MRP- Maturity Risk Premium
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Term
| The Nominal, or Quoted, Risk-Free Rate of Interest; r* + IP |
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Definition
The real risk-free rate plus a premium for expected inflation:
-No such "risk free rate" |
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Term
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Definition
| Equal to the average expected inflation rate over the life of the security in to the rate that is charged. |
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Term
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Definition
| The likely hood that the borrower will default, thiat is: not make scheduled payments on the bond. |
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Term
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Definition
The ability and ease for a bond to be converted to cash. The less Liquid, the more points, to compensate for risk of missed opportunity
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Term
MRP
Maturity Risk Premium |
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Definition
| The way that we add a cost associated with the increased risk of having a bond that matures later, thus is of greater risk to be effected by interest rates |
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Term
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Definition
| The risk that Short Term Bonds are exposed to since they cant control the change in interest rates that may occur, therefore if the going interest rate is lower, they might get significantly lower returns |
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