FinancialMarketsChap10

FinancialMarketsChap10 - Michael Yu Chapter 10 Key Points...

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Michael Yu Chapter 10 Key Points and Terms Terms: Basis Point – One one-hundredth (or 1%) of one percentage point Broker’s Commission – The fee charged by an intermediary in a transaction of buying or selling a security Call Provision – Entitles the debtor to repay in advance, usually with some penalty and only after a few number of years Complexity – The property of an asset that represents a combination of two or more simple assets Convertibility – Provision that allows the owner to convert a security into another type of security Coupon rate – The percentage of the principal that is the bond’s contractual yearly payment Currency – The type of nominal monetary unit in which an asset is denominated and its payments are made Default risk premium – The portion of the rate of return that compensates an investor for the prospect that the security may default Discount rate – (1) The interest rate that the Fed charges banks to borrow funds for brief amounts of time, (2) the interest rate used to calculate the PV of cash flows Divisibility – An asset that can be divided into small units Duration – A measure of the price sensitivity of an asset or liability to a change in interest rates. Approximate change in the price of an asset for a 100 basis point change in interest rates. Effective duration – A duration measure that allows for the fact that the cash flow might change when interest rates change Exchange rate risk premium – The portion of the rate of return that compensates an investor for the perceived volatility of the rate of exchange between the home currency and the currency
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This note was uploaded on 01/27/2010 for the course ECON 252 taught by Professor Robertshiller during the Spring '08 term at Yale.

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FinancialMarketsChap10 - Michael Yu Chapter 10 Key Points...

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