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Interest coverage test
A debt limitation that prohibits the issuance of additional long-term debt if the issuer's interest coverage would, as a result of the issue, fall below some specified minimum.
Interest deduction
An interest expense, such as interest on a margin account, that is allowed as a deduction for tax_deduction.
Interest during construction
Interest accumulated during construction period, which usually equals capitalized interest.
Interest equalization tax
Tax on foreign investment by residents of the US which was abolished in 1974.
Interest expense
Interest expense is the money the corporation or individual pays out in interest on loans.
Interest in Arrears
Interest that is due only at the maturity date rather than periodically over the life of the loan.
Interest on interest
Interest earned on reinvestment of each interest_payments on money invested. See: compound interest.
Interest payments
Contractual debt payments based on the coupon rate of interest and the principal amount.
Interest rate
The monthly effective interest rate. For example, the periodic rate on a credit card with an 18% annual percentage rate is 1.5% per month.
Interest rate agreement
An agreement whereby one party, for an up-front premium, agrees to compensate the other at specific time periods if a designated interest rate (the reference rate) is different from a predetermined level (the strike rate).
Interest rate cap
An interest rate agreement in which payments are made when the reference rate exceeds the strike rate. Also called an interest rate ceiling.
Interest rate ceiling
See Also: Interest rate cap
Interest rate floor
An interest rate agreement in which payments are made when the reference rate falls below the strike rate. Related: Interest rate cap.
Interest rate futures contract
A futures contract based on an interbank deposit rate or an underlying debt security. The value of the contract rises and falls inversely to changes in interest rates.
Interest rate on debt
The firm's cost of debt capital.
Interest rate parity line (IRP)
Diagonal line on a graph that characterizes interest rate parity.
Interest rate parity theorem
Expression that the interest rate differential between two countries is equal to the difference between the forward foreign exchange rate and the spot rate.
Interest rate risk
The chance that a security's value will change due to a change in interest rates. For example, a bond's price drops as interest rates rise. For a depository institution, also called funding risk : The risk that spread income will suffer because of a change in interest rates.
Interest rate swap
A binding agreement between counterparties to exchange periodic interest payments on some predetermined dollar principal, which is called the notional principal amount. For example, one party will pay fixed and receive variable.
Interest subsidy
The value of a firm's deduction of the interest payments on its debt from its earnings before calculation of its tax bill under current tax law.
Interest tax shield
The reduction in income tax that results from the tax-deductibility of interest payments.
Interest-only loan
A loan in which payment of principal is deferred and interest payments are the only current obligation.
Interest-only strip (IO)
A security based solely on the interest payments from a pool of mortgages, Treasury bonds, or other bonds. Once the principal on the mortgages or bonds has been repaid, interest payments stop, and the value of the IO falls to zero.
Interest-sensitive insurance policy
A cash value life insurance policy whose insurance dividend rates vary with respect to inflation, enabling the policyholder to avoid the loss of purchasing power associated with inflation.
Interest-sensitive stock
Stocks whose earnings are dependent upon and change with the interest rate, e.g., bank stocks.
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