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Verðbréf lokapróf
Term | Definition |
---|---|
Relative Pricing | New investment oppertunities are priced relative to the market |
Arbitrage | A risk free profit oppertunity |
Dynamic | Instruments that are traded on a continious basis with the price of an instrument being a process with uncertenty |
Risk aversion | People pay more for less risk |
Internal rate of return (IRR) | The IRR is the nominal annually compounding rate r such that the NPV of the cashflow series is 0 |
Fixed income securities | Security that pays the investor a fixed cashflow stream |
Financial instruments | Monetary contracts between parties. |
Securities | Tradeable financial instruments. |
Amortization | The substitution of equal periodic payments for a current obligation. |
Bond | A bond is an obligation by the bond issuer to pay money to the bond holder according to the rules specified when the bond is issued. |
Yield | The annual interest rate at which the NPV of a stream of payments is exactly equal to its current price. |
Duration | The duration of a cash flow stream is the weighted average of the times until the fixed cash flows are received. |
Forward rates | An IR agreed upon at time t fot the future period t1 until t2 |
Spot rates | Spot rates are the basic interest rates defining the term structure. The spot rate St is the basic rate of interest, expressed in yearly terms, charged for money held from the present time (t = 0) until time t |
Short Rates | Short rates are one-period forward rates, |
Annual Worth | The annual worth of an investment is the equivalent uniform annual cash flow of all its receipts (inflows) and expenditures (outflows). |