FinancialMarketsChap11

FinancialMarketsChap11 - Michael Yu Chapter 11 Key Points...

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Michael Yu Chapter 11 Key Points and Terms Terms: Base interest rate – The minimum yield sought on an investment as measured by the yield on an on-the-run Treasury issue of the same maturity Bond-equivalent yield – The convention adopted in the bond market to annualize a semiannual yield by doubling its value Convertible bond – A bond issue in which the bondholder has the right to exchange the bond for a specified number of shares of common stock Credit rating – Rating of an issued bond based on perceived likelihood of default Embedded option – An option in a bond issue granted to either the bondholder or the issuer Equivalent taxable yield – The yield that must be offered on a taxable bond in order to realize a certain tax exempt yield Fisher’s Law – Theory that observed nominal rate of interest is composed of the real rate and a premium for expected inflation Fisher Theory of interest – Classical analysis of the supply and demand for investment funds High-grade bond – A bond with a quality rating that indicates low credit risk Income effect – The rise in the interest rate that occurs because an increase in the money supply causes the economy’s income to expand and the demand for money to increase Intermarket sector spread – The spread between the interest rate offered in 2 sectors of the bond market on issues with the same maturity Intramarket sector spread – The spread between the yield offered on 2 bonds in the same sector of the bond market Liquidity effect – The initial decline in the rate of interest that occurs because of an increase in the money supply Liquidity preference theory of interest – The theory, propounded by Keynes, that the interest rate
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FinancialMarketsChap11 - Michael Yu Chapter 11 Key Points...

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