related terms - Finance 254 Related Terms Chapters 6 and 7...

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Finance 254 Related Terms – Chapters 6 and 7 Yields / Interest Rates discount rate – any interest rate that is used to either discount cash flows back in time or compound cash flows forward in time. yield to maturity – the yield that is earned on a bond when it is purchased and held until its maturity date. It depends on the dollar price paid for the bond by the investor. An investor may lock in this rate by purchasing the bond and holding it until maturity. However, because the price of a bond may change, the yield to maturity may change in the market for investors that buy the bond at a later date. expected return – the rate of return an investor expects to receive by holding an asset. This is an expectation about the future, so the realized rate of return may differ from the expectation. required rate of return – the rate of return an investor requires on an asset, given the risk characteristics of that asset. It reflects an individual’s personal preferences with respect to risk. holding period return
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