effective annual rate
the total amount of interest that will be earned at the end of one year. Also known as APY
APR
indicates the amount of interest earned in one year without the effect of compounding
simple interest
interest earned without the effect of compounding
amortizing loan
a loan on which the borrower makes monthly payments that include interest on the loan plus some part of the loan balance
nominal interest rate
interest rates quoted by banks and other financial institutions that indicate the rate at which money will grow if invested for a certain period of time
real interest rate
the rate of growth of purchasing power after adjusting for inflation
term structure
the relationship between the investment term and the interest rate
yield curve
a plot of bond yields as a function of the bond's maturity date
risk-free interest rate
the interest rate at which money can be borrowed or lent without risk over a given period
federal funds rate
the overrnight loan rate charged by banks with excess reserves at a Federal Reserve bank (called federal funds) to banks that need additional funds to meet reserve requirements
opportunity cost of capital
the best available expected return offered in the market on an investment of comparable risk and term to the cash flow being discounted; the return the investor forgoes on an alternative investment of equivalent risk and term when the investor takes on a