{"id":426,"date":"2023-03-28T15:51:25","date_gmt":"2023-03-28T15:51:25","guid":{"rendered":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/?post_type=chapter&p=426"},"modified":"2023-04-02T23:33:33","modified_gmt":"2023-04-02T23:33:33","slug":"key-terms-2","status":"publish","type":"chapter","link":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/chapter\/key-terms-2\/","title":{"raw":"Glossary of Key Terms","rendered":"Glossary of Key Terms"},"content":{"raw":"
\r\n \t
\r\n

Chapter 7 Glossary of Key Terms<\/h2>\r\n<\/dt>\r\n \t
<\/dt>\r\n \t
bond call<\/dt>\r\n \t
a feature of certain bonds or other fixed-income instruments that allows the issuer to repurchase and retire these instruments before maturity<\/dd>\r\n<\/dl>\r\n
\r\n \t
bond price<\/dt>\r\n \t
the present, discounted value of the future cash stream generated by a bond; the sum of the present values of all likely coupon payments and the present value of the par value at maturity<\/dd>\r\n<\/dl>\r\n
\r\n \t
bond ratings<\/dt>\r\n \t
grades assigned to bonds by rating services that indicate their overall credit quality<\/dd>\r\n<\/dl>\r\n
\r\n \t
Business Cycle Dating Committee<\/dt>\r\n \t
a subdivision of the National Bureau of Economic Research (NBER), the US government agency that maintains a chronology of US business cycles<\/dd>\r\n<\/dl>\r\n
\r\n \t
call risk<\/dt>\r\n \t
the risk that a bond issuer will redeem a callable bond prior to maturity<\/dd>\r\n<\/dl>\r\n
\r\n \t
capital gains<\/dt>\r\n \t
the increase in a capital asset\u2019s value that is realized when the asset is sold<\/dd>\r\n<\/dl>\r\n
\r\n \t
cash rate<\/dt>\r\n \t
the interest rate that a central bank, such as the Reserve Bank of Australia or the US Federal Reserve System, will charge commercial banks for loans; also known as the bank rate or the base interest rate<\/dd>\r\n<\/dl>\r\n
\r\n \t
convertible bonds<\/dt>\r\n \t
fixed-income corporate debt securities that yield interest payments but can be converted into a predetermined number of common stock or equity shares<\/dd>\r\n<\/dl>\r\n
\r\n \t
coupon payment<\/dt>\r\n \t
the periodic dollar value of interest that is paid to a bondholder by the bond issuer<\/dd>\r\n<\/dl>\r\n
\r\n \t
coupon rate<\/dt>\r\n \t
the amount of annual interest paid by the bond issuer; is multiplied by the face value of a bond to determine annual interest or coupon payment amounts<\/dd>\r\n<\/dl>\r\n
\r\n \t
credit risk<\/dt>\r\n \t
the risk taken by a bond investor that the bond issuer will default by failing to pay interest and repay the principal on schedule<\/dd>\r\n<\/dl>\r\n
\r\n \t
deep discount bonds<\/dt>\r\n \t
bonds that sell at significantly lower values than their par values<\/dd>\r\n<\/dl>\r\n
\r\n \t
default<\/dt>\r\n \t
when an issuer fails to make scheduled interest or principal payments on its bonds<\/dd>\r\n<\/dl>\r\n
\r\n \t
default risk<\/dt>\r\n \t
the risk taken by investors that payments will be delayed or will not occur<\/dd>\r\n<\/dl>\r\n
\r\n \t
discount bond<\/dt>\r\n \t
a bond currently trading for less than its par value in the secondary market; offers a coupon rate that is lower than prevailing interest rates<\/dd>\r\n<\/dl>\r\n
\r\n \t
duration<\/dt>\r\n \t
a measure of how much bond prices are likely to change if and when interest rates move<\/dd>\r\n<\/dl>\r\n
\r\n \t
duration risk<\/dt>\r\n \t
the risk associated with the sensitivity of a bond\u2019s price to a 1% change in interest rates<\/dd>\r\n<\/dl>\r\n
\r\n \t
Federal Reserve funds rate (federal funds rate)<\/dt>\r\n \t
the target interest rate, set by the Federal Reserve, at which commercial banks borrow and lend their excess reserves to each other<\/dd>\r\n<\/dl>\r\n
\r\n \t
Federal Reserve System (the Fed)<\/dt>\r\n \t
the central banking system of the United States, responsible for administering fiscal policy for the country<\/dd>\r\n<\/dl>\r\n
\r\n \t
fixed-income securities<\/dt>\r\n \t
investments that provide a return in the form of fixed, periodic interest payments and the eventual return of principal at maturity; the most common forms are bonds<\/dd>\r\n<\/dl>\r\n
\r\n \t
floating-rate bonds<\/dt>\r\n \t
bonds with variable interest rates that allow investors to benefit from rising interest rates<\/dd>\r\n<\/dl>\r\n
\r\n \t
interest income<\/dt>\r\n \t
annual interest amounts paid, or coupon payments made, on a bond between its issue date and the date of maturity<\/dd>\r\n<\/dl>\r\n
\r\n \t
interest rate risk<\/dt>\r\n \t
the risk of investment losses that result from changes in interest rates<\/dd>\r\n<\/dl>\r\n
\r\n \t
investment grade<\/dt>\r\n \t
describes a municipal or corporate bond with a rating that indicates it presents a low risk of default<\/dd>\r\n<\/dl>\r\n
\r\n \t
junk bonds<\/dt>\r\n \t
bonds that have been given a low credit rating, below investment grade; riskier than other bonds due to a greater chance that the issuer will default or experience a credit event<\/dd>\r\n<\/dl>\r\n
\r\n \t
liquidity risk<\/dt>\r\n \t
risk that stems from the lack of marketability of an investment, meaning that it cannot be bought or sold quickly enough to prevent or minimize a loss<\/dd>\r\n<\/dl>\r\n
\r\n \t
London Interbank Offered Rate (LIBOR)<\/dt>\r\n \t
a benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans<\/dd>\r\n<\/dl>\r\n
\r\n \t
maturity date<\/dt>\r\n \t
the date on which a bondholder ceases to receive interest payments on a bond investment and instead is repaid its par, or face, value<\/dd>\r\n<\/dl>\r\n
\r\n \t
municipal bonds (\u201cmunis\u201d)<\/dt>\r\n \t
debt securities issued by state and local governments; can be thought of as loans that investors make to local governments to fund infrastructure<\/dd>\r\n<\/dl>\r\n
\r\n \t
par value<\/dt>\r\n \t
also called the face amount or face value; the value written on the front of the bond, which is the amount of money that bond issuers promise to be paid at maturity<\/dd>\r\n<\/dl>\r\n
\r\n \t
premium bond<\/dt>\r\n \t
a bond that is trading above its par value in the secondary market; offers a coupon rate that is higher than the current prevailing interest rates being offered<\/dd>\r\n<\/dl>\r\n
\r\n \t
prime rate<\/dt>\r\n \t
the interest rate that banks charge creditworthy corporate customers; among the most widely used benchmarks for setting home equity lines of credit and credit card rates, based on the federal funds rate set by the Federal Reserve<\/dd>\r\n<\/dl>\r\n
\r\n \t
rating agencies (bond rating services)<\/dt>\r\n \t
independent service agencies, such as Fitch, Moody\u2019s, or Standard & Poor\u2019s, that perform the isolated function of credit risk evaluation<\/dd>\r\n<\/dl>\r\n
\r\n \t
realized return<\/dt>\r\n \t
the actual return that an investor earns over a given time period through the buying and selling of a security<\/dd>\r\n<\/dl>\r\n
\r\n \t
reinvestment risk<\/dt>\r\n \t
the risk that an investor will be unable to reinvest cash flows received from an investment (e.g., coupon payments or interest) at a rate comparable to their current rate of return<\/dd>\r\n<\/dl>\r\n
\r\n \t
savings bonds<\/dt>\r\n \t
debt securities purchased by investors, as a personal investments or as gifts, that the US government issues to pay for certain public or government programs<\/dd>\r\n<\/dl>\r\n
\r\n \t
term risk<\/dt>\r\n \t
the risk of potentially earning lower returns on longer-term bond holdings compared to those potentially available when making several shorter-term investments over the same period of time<\/dd>\r\n<\/dl>\r\n
\r\n \t
US Treasury bills (T-bills)<\/dt>\r\n \t
short-term US government debt obligations backed by the Treasury Department with a maturity of one year or less<\/dd>\r\n<\/dl>\r\n
\r\n \t
US Treasury note rate<\/dt>\r\n \t
the interest rate that the US government pays to borrow money for different lengths of time; notes are issued in terms of two, three, five, seven, and 10 years<\/dd>\r\n<\/dl>\r\n
\r\n \t
yield curve<\/dt>\r\n \t
a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates; gives an idea of future interest rate changes and economic activity<\/dd>\r\n<\/dl>\r\n
\r\n \t
yield to maturity (YTM)<\/dt>\r\n \t
the total return anticipated on a bond if the investment is held until maturity<\/dd>\r\n<\/dl>\r\n
\r\n \t
zero-coupon bonds<\/dt>\r\n \t
bonds that are issued at a deep discount from face value and offer no interest or coupon payments<\/dd>\r\n<\/dl>\r\n \r\n\r\nAttribution:<\/strong>\r\n\r\nThis chapter is from \u201cPrinciples of Finance\u201d \u00a0https:\/\/openstax.org\/books\/principles-finance\/pages\/1-why-it-matters<\/a> by Dahlquist and Knight. This book is licensed under the CC-BY<\/a> 4.0 license. 2022 OpenStax.\r\n\r\nhttps:\/\/openstax.org\/books\/principles-finance\/pages\/1-key-terms<\/a>\r\n\r\nAccess for free at https:\/\/openstax.org\/books\/principles-finance\/pages\/10-key-terms<\/a>","rendered":"
\n
\n<\/dt>\n
<\/dt>\n
bond call<\/dt>\n
a feature of certain bonds or other fixed-income instruments that allows the issuer to repurchase and retire these instruments before maturity<\/dd>\n<\/dl>\n
\n
bond price<\/dt>\n
the present, discounted value of the future cash stream generated by a bond; the sum of the present values of all likely coupon payments and the present value of the par value at maturity<\/dd>\n<\/dl>\n
\n
bond ratings<\/dt>\n
grades assigned to bonds by rating services that indicate their overall credit quality<\/dd>\n<\/dl>\n
\n
Business Cycle Dating Committee<\/dt>\n
a subdivision of the National Bureau of Economic Research (NBER), the US government agency that maintains a chronology of US business cycles<\/dd>\n<\/dl>\n
\n
call risk<\/dt>\n
the risk that a bond issuer will redeem a callable bond prior to maturity<\/dd>\n<\/dl>\n
\n
capital gains<\/dt>\n
the increase in a capital asset\u2019s value that is realized when the asset is sold<\/dd>\n<\/dl>\n
\n
cash rate<\/dt>\n
the interest rate that a central bank, such as the Reserve Bank of Australia or the US Federal Reserve System, will charge commercial banks for loans; also known as the bank rate or the base interest rate<\/dd>\n<\/dl>\n
\n
convertible bonds<\/dt>\n
fixed-income corporate debt securities that yield interest payments but can be converted into a predetermined number of common stock or equity shares<\/dd>\n<\/dl>\n
\n
coupon payment<\/dt>\n
the periodic dollar value of interest that is paid to a bondholder by the bond issuer<\/dd>\n<\/dl>\n
\n
coupon rate<\/dt>\n
the amount of annual interest paid by the bond issuer; is multiplied by the face value of a bond to determine annual interest or coupon payment amounts<\/dd>\n<\/dl>\n
\n
credit risk<\/dt>\n
the risk taken by a bond investor that the bond issuer will default by failing to pay interest and repay the principal on schedule<\/dd>\n<\/dl>\n
\n
deep discount bonds<\/dt>\n
bonds that sell at significantly lower values than their par values<\/dd>\n<\/dl>\n
\n
default<\/dt>\n
when an issuer fails to make scheduled interest or principal payments on its bonds<\/dd>\n<\/dl>\n
\n
default risk<\/dt>\n
the risk taken by investors that payments will be delayed or will not occur<\/dd>\n<\/dl>\n
\n
discount bond<\/dt>\n
a bond currently trading for less than its par value in the secondary market; offers a coupon rate that is lower than prevailing interest rates<\/dd>\n<\/dl>\n
\n
duration<\/dt>\n
a measure of how much bond prices are likely to change if and when interest rates move<\/dd>\n<\/dl>\n
\n
duration risk<\/dt>\n
the risk associated with the sensitivity of a bond\u2019s price to a 1% change in interest rates<\/dd>\n<\/dl>\n
\n
Federal Reserve funds rate (federal funds rate)<\/dt>\n
the target interest rate, set by the Federal Reserve, at which commercial banks borrow and lend their excess reserves to each other<\/dd>\n<\/dl>\n
\n
Federal Reserve System (the Fed)<\/dt>\n
the central banking system of the United States, responsible for administering fiscal policy for the country<\/dd>\n<\/dl>\n
\n
fixed-income securities<\/dt>\n
investments that provide a return in the form of fixed, periodic interest payments and the eventual return of principal at maturity; the most common forms are bonds<\/dd>\n<\/dl>\n
\n
floating-rate bonds<\/dt>\n
bonds with variable interest rates that allow investors to benefit from rising interest rates<\/dd>\n<\/dl>\n
\n
interest income<\/dt>\n
annual interest amounts paid, or coupon payments made, on a bond between its issue date and the date of maturity<\/dd>\n<\/dl>\n
\n
interest rate risk<\/dt>\n
the risk of investment losses that result from changes in interest rates<\/dd>\n<\/dl>\n
\n
investment grade<\/dt>\n
describes a municipal or corporate bond with a rating that indicates it presents a low risk of default<\/dd>\n<\/dl>\n
\n
junk bonds<\/dt>\n
bonds that have been given a low credit rating, below investment grade; riskier than other bonds due to a greater chance that the issuer will default or experience a credit event<\/dd>\n<\/dl>\n
\n
liquidity risk<\/dt>\n
risk that stems from the lack of marketability of an investment, meaning that it cannot be bought or sold quickly enough to prevent or minimize a loss<\/dd>\n<\/dl>\n
\n
London Interbank Offered Rate (LIBOR)<\/dt>\n
a benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans<\/dd>\n<\/dl>\n
\n
maturity date<\/dt>\n
the date on which a bondholder ceases to receive interest payments on a bond investment and instead is repaid its par, or face, value<\/dd>\n<\/dl>\n
\n
municipal bonds (\u201cmunis\u201d)<\/dt>\n
debt securities issued by state and local governments; can be thought of as loans that investors make to local governments to fund infrastructure<\/dd>\n<\/dl>\n
\n
par value<\/dt>\n
also called the face amount or face value; the value written on the front of the bond, which is the amount of money that bond issuers promise to be paid at maturity<\/dd>\n<\/dl>\n
\n
premium bond<\/dt>\n
a bond that is trading above its par value in the secondary market; offers a coupon rate that is higher than the current prevailing interest rates being offered<\/dd>\n<\/dl>\n
\n
prime rate<\/dt>\n
the interest rate that banks charge creditworthy corporate customers; among the most widely used benchmarks for setting home equity lines of credit and credit card rates, based on the federal funds rate set by the Federal Reserve<\/dd>\n<\/dl>\n
\n
rating agencies (bond rating services)<\/dt>\n
independent service agencies, such as Fitch, Moody\u2019s, or Standard & Poor\u2019s, that perform the isolated function of credit risk evaluation<\/dd>\n<\/dl>\n
\n
realized return<\/dt>\n
the actual return that an investor earns over a given time period through the buying and selling of a security<\/dd>\n<\/dl>\n
\n
reinvestment risk<\/dt>\n
the risk that an investor will be unable to reinvest cash flows received from an investment (e.g., coupon payments or interest) at a rate comparable to their current rate of return<\/dd>\n<\/dl>\n
\n
savings bonds<\/dt>\n
debt securities purchased by investors, as a personal investments or as gifts, that the US government issues to pay for certain public or government programs<\/dd>\n<\/dl>\n
\n
term risk<\/dt>\n
the risk of potentially earning lower returns on longer-term bond holdings compared to those potentially available when making several shorter-term investments over the same period of time<\/dd>\n<\/dl>\n
\n
US Treasury bills (T-bills)<\/dt>\n
short-term US government debt obligations backed by the Treasury Department with a maturity of one year or less<\/dd>\n<\/dl>\n
\n
US Treasury note rate<\/dt>\n
the interest rate that the US government pays to borrow money for different lengths of time; notes are issued in terms of two, three, five, seven, and 10 years<\/dd>\n<\/dl>\n
\n
yield curve<\/dt>\n
a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates; gives an idea of future interest rate changes and economic activity<\/dd>\n<\/dl>\n
\n
yield to maturity (YTM)<\/dt>\n
the total return anticipated on a bond if the investment is held until maturity<\/dd>\n<\/dl>\n
\n
zero-coupon bonds<\/dt>\n
bonds that are issued at a deep discount from face value and offer no interest or coupon payments<\/dd>\n<\/dl>\n

 <\/p>\n

Attribution:<\/strong><\/p>\n

This chapter is from \u201cPrinciples of Finance\u201d \u00a0https:\/\/openstax.org\/books\/principles-finance\/pages\/1-why-it-matters<\/a> by Dahlquist and Knight. This book is licensed under the CC-BY<\/a> 4.0 license. 2022 OpenStax.<\/p>\n

https:\/\/openstax.org\/books\/principles-finance\/pages\/1-key-terms<\/a><\/p>\n

Access for free at https:\/\/openstax.org\/books\/principles-finance\/pages\/10-key-terms<\/a><\/p>\n","protected":false},"author":101,"menu_order":1,"template":"","meta":{"pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-426","chapter","type-chapter","status-publish","hentry"],"part":32,"_links":{"self":[{"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/pressbooks\/v2\/chapters\/426","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/wp\/v2\/users\/101"}],"version-history":[{"count":4,"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/pressbooks\/v2\/chapters\/426\/revisions"}],"predecessor-version":[{"id":1282,"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/pressbooks\/v2\/chapters\/426\/revisions\/1282"}],"part":[{"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/pressbooks\/v2\/parts\/32"}],"metadata":[{"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/pressbooks\/v2\/chapters\/426\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/wp\/v2\/media?parent=426"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/pressbooks\/v2\/chapter-type?post=426"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/wp\/v2\/contributor?post=426"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/wp\/v2\/license?post=426"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}