ACCOUNTING TERMS - ACCOUNTING DICTIONARY - ACCOUNTING GLOSSARY
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INTEREST RATE RISK Definition
INTEREST RATE RISK results from increases and decreases in bond prices caused by changes in interest rates. When interest rates rise, the prices of bonds fall to compensate for the higher level of income demanded by investors. Bonds that carry less than the new market rate of interest must sell for lower prices. For example, if an investor purchases a bond at par value ($1,000) with a 7% coupon and interest rates rise to the point where the same bond later yields 9%, the bond will decline in price to the point where its yield to maturity is equivalent to the yield to maturity on a 9% current coupon. In other words, the investor will earn the prevailing market rate of 9%- by buying a bond priced at par with the 9% coupon, or by buying the bond at a discount to par with a 7% coupon.
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IN-KIND is the value of goods or services provided for which money would have otherwise been paid.
CONDITIONAL SALES CONTRACT is a credit contract used for the purchase of equipment where the purchaser doesnt receive title of the equipment until the amount specified in the contract has been paid in full.