Auction Rate
The interest rate that will be paid on a specific security as determined by the Dutch auction process. The auctions take place at periodic intervals, and the interest rate is fixed until the next auction is held. This process is commonly used to determine the interest rate on Treasury bills. Investopedia Says:
The auction rate is also used in other debt securities, such as municipal bonds. This is a good way for both the investor and the issuer to forecast their returns and costs, respectively, as the auctions can be held as often as annually or even weekly. The auction process also allows investors to mitigate reinvestment risk because the interest rate fluctuations are generally less volatile. Related Terms:
Auction
Auction Market
Auction Market Preferred Stock - AMPS
Debt Security
Dutch Auction
Interest
Interest Rate
Municipal Bond
Reinvestment Risk
Treasury Bill - T-Bill |