What is a bond spread?

A bond spread is the difference between the yields of two bonds with different credit ratings.  The differing ratings are usually because of different levels of risk involved with the bonds.  Mathematically, you can calculate the spread by subtracting the interest rate of one bond from the interest rate of the other.  For example, if …

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What is the difference between a real interest rate and a nominal interest rate?

In our current economic conditions, it is important to understand interest rates.  If you do not understand what the actual cost of borrowing of lending money is, you could be cheating yourself out of profits.  Let’s start by defining nominal interest rates.  The nominal interest rate is the market interest rate before an adjustment for …

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What is the London Interbank Offer Rate (LIBOR)?

Today, we are going to be looking into the world of international finance.  The London Interbank Offer Rate (LIBOR) is an interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market (source).  The LIBOR is fixed on a daily basis by the British Bankers’ Association.  The BBA polls …

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