True interest cost

Definition:

For a security such as commercial paper that is sold on a discount basis, true interest cost is the coupon rate required to provide an identical return assuming a coupon-bearing instrument of like maturity that pays interest in arrears.

Investing Essentials


Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

Term of the Day

Perfect hedge

A situation in which the profit and loss from the underlying asset and the hedge position are equal.

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