discounting | the compound reduction from FV to PV |

compounding | the earning of interest on interest |

compound interest | interest earned in subsequent periods on the interest earned in previous periods |

lump-sum payment | one time payment at a PV or FV |

TVM | key value that a dollar today is worth more than a dollar tomorrow |

amortization schedule | listing of periodic interest expense, reduction in principal each period, ending balance for each period |

amortized loan | loan in which interest and principal is paid each period |

annuity | series of equal cash flows at regular intervals across time |

annuity due | series of equal & regular pmts at the beginning of a period |

console (perpetual bonds) | stocks that pay interest forever, no maturity date, no promise to pay principal |

discount loan | loan where interest & principal is repaid at maturity |

interest only loan | loan where interest is paid regularly. principal & final interest is paid at date due. |

perpetuity | infinite regular & equal pmts |

APR | yearly uncompounded rate of interest |

EAR (effective annual rate) | compound rate of interest per year |

compounding period | period in which interest is applied |

fisher effect | relationship which nominal interest rate is a function of the real rate, inflation, and product of inflation and real rate |

maturity premium | the portion of the nominal interest rate that compensates the investor for additional waiting time to receive payment in full |

nominal interest rate | interest rate composed of real interest rate plus the inflation rate |

periodic interest rate | the number of compounding periods per year |

real interest rate | the reward for waiting |

reward for waiting | real rate of interest paid for forgoing use of money today. |

risk free rate | theoretical interest rate with zero risk of any kind |

yield curve | graph relating return rate and an asset's time to maturity |

basis point | one hundredth of a percentage point |

bearer bond | bond where ownership to the possessor |

Bone equivalent yield (BEY) | annual % rate converted from bank discount rate on a treasury bill |

callable bond | bond that issuer has the right to buy back prior to maturity at a predetermined price |

convertible bond | right to swap bond for another asset, usually common stock, at a preset conversion ratio under certain conditions |

corpus | bond with the coupons clipped off representing only principal |

coupon | regular interest pmt of bond |

current yield | annual bond coupon pmt divided by current price |

debentures | unsecured bonds |

floating rate bond | bond with changing coupon rate |

indenture | formal contract of a bond detailing important information |

junor debt | debt subsequent to the other (senior) debt with lower priority of pmt |

par value | principal amount to be paid at the maturity date |

premium bond | bond that current value is above par value |

prime rate | interest rate banks charge their best customers |

protective covenant | part of the bond that spells out both required and prohibited actions of the bond issuer |

putable bond | bond holder has the right to sell the bond back to the issuer at a determined price prior to maturity |

sinking fund | special fund for the retirement of debt on bonds |

STRIPS | zero-coupon bonds made by separating the interest and principal on us. govt bonds |

treasury bill | govt bond with a maturity less than one year |

treasury bond | govt bond with maturity of more than ten years |

treasury note | govt bond with a maturity between 2 and 10 years |

yield to call | discount rate of return for a callable premium bond |

yield to maturity (YTM) | return the holder receives if held on till maturity |

zero-coupon bond | a bond that pays no coupons over its maturity |

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