The interest rate that will make the net present value of the cash flows from an investment equal to the price (or cost) of the investment. The net present value is the present value of future cash flows, discounted at the present cost of capital.
The current yield relates the annual coupon yield to the market price by dividing the coupon by the price divided by 100, neglecting the time value of money or potential capital gains and losses.
The simple yield-to-maturity takes into account the effect of the capital gained or lost at maturity, as well as the current yield.
Commodity trading and risk management is a subject that is necessarily complicated, and is becoming more so. The Energy Risk Glossary seeks to disentangle and clarify the jargon by providing definitions of commonly used energy and commodity market terms.
These include definitions related to a variety of underlying energy products, as well as technical terms about the many instruments and benchmarks used by energy market participants.
Many of the most recent terms to have been added to our glossary stem from the actions of regulators since the 2008 global financial crisis. The onset of rules, such as the US Dodd-Frank Act and European Market Infrastructure Regulation, has markedly increased the cost and complexity associated with commodity trading. Perhaps they have also increased the need for a handy reference guide such as this.
The glossary is extensively cross-referenced, making for easy and thorough searches. We hope you find the latest edition of the Energy Risk Glossary to be a useful resource.
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