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21 Cards in this Set

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  • Back
Production Opportunities
The investment opportunities in productive (cash generating) assets.
Time Preferences for Consumption
The preferences of consumers for current consumption as opposed to saving for future consumption.
Risk
In a financial market context, the chance that an investment will provide low or negative return.
Inflation
The amount by which prices increase over time.
Real Risk-Free Rate of Interest r*
The rate of interest that would exist on default-free U.S. Treasury securities if no inflation were expected.
Nominal (Quoted) Risk-Free Rate rRF
The rate of interest on a security that i free of all risk, rRF is proxied by the T-Ball rate or the T-Bone rate rRF includes an inflation preimum.
Inflation Premium (IP)
A premium equal to expected inflation that investors add to the real risk-free rate of return.
Default Risk Premium (DRP)
The difference between the interest rate on a US Treasury bond and a corporate bond of equal maturity and marketability.
Liquidity Premium (LP)
A premium added to the equilibrium interest rate on a security if that security cannot be converted to cash on short notice and at close to its "fair market value".
Interest Rate Risk
The risk of capital losses to which investors are exposed because of changing interest rates.
Maturity Risk Premium (MRP)
A premium that reflects interest rate risk.
Reinvestment Rate Risk
The risk that a decline in interest rates will lead to lower income when bonds mature and funds are reinvested.
Term Structure of Interest Rates
The relationship between bond yields and maturities.
Yield Curve
A graph showing the relationship between bond yields and maturities.
"Normal" Yield Curve
A upward-sloping yield curve.
Inverted (abnormal) Yield Curve
A downward sloping yield curve.
Humped Yield Curve
A yield curve where interest rates on medium-term maturities are higher than rates on both short- and long-term maturities.
Pure Expectations Theory
A theory that states that the shape of the yield curve depends on investors' expectations about future interest rates.
Foreign Trade Deficit
Thee situation that exists when a country imports more than it exports.
Country Risks
The risk that arises from investing or doing business in a particular country.
Exchange Rate Risk
The risk that exchange rate changes will reduce the number of dollars provided by a given amount of a foreign currency.