1.consol or perpetuity
2.nominal interest rate
3.real interest rate
- Chris YLv 61 decade agoFavorite Answer
1.Perpetunity is a constant stream of identical cash flows with no end.The British issued bonds, called consols, which are a great example of a perpetuity. By purchasing a consol from the British government, the bondholder is entitled to receive annual interest payments forever. Although it may seem a bit illogical, an infinite series of cash flows can have a finite present value.
2.The interest rate unadjusted for inflation. Not taking into account inflation gives a less realistic number.
3.The amount by which the nominal interest rate is higher than the inflation rate. The real rate of interest is approximated by taking the nominal interest rate and subtracting inflation. The real interest rate is the growth rate of purchasing power derived from an investment.
4.The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action.The difference in return between a chosen investment and one that is necessarily passed up.
5.The possibility that a bond issuer will default, by failing to repay principal and interest in a timely manner. Bonds issued by the federal government, for the most part, are immune from default (if the government needs money it can just print more).
6.The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity. The ability to convert an asset to cash quickly. Also known as "marketability".
7.The return in excess of the risk-free rate of return that an investment is expected to yield. An asset's risk premium is a form of compensation for investors who tolerate the extra risk - compared to that of a risk-free asset - in a given investment.Source(s): .................