| arbitrage | Buying/selling assets to take advantage of differences in returns.
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| consol (or perpetuity) | An asset that pays a fixed amount (coupon) each period forever.
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| coupon | Periodic payment made to the holders of a bond.
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| expectations theory of the term structure | States that long-term interest rates are equal to the average of current and expected future short-term interest rates, plus a term premium.
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| face value | The amount that a bond pays its holder on expiration. The market value of a bond will equal its face value when the market interest rate is equal to the coupon
rate on the bond.
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| net present value | Same as present value; amount today that is equivalent to a future payment—the amount of money that, invested at the market interest rate, would generate that amount of money.
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| present value | See net present value.
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| random walk | A variable in which changes over time are unpredictable.
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| term (of bond) | See maturity of bond.
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| term premium | Premium paid holders of bonds for the risk associated with a particular maturity.
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| term structure of interest | The relationship between interest rates on bonds of different
maturities.
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| uncovered interest parity | Relationship between interest differentials and expected
currency appreciation.
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| yield curve | Shows how interest rates change as bond maturities increase.
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