Search Investopedia

Auction Rate

Filed Under » , ,
Dictionary Says

Definition of '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

Investopedia explains 'Auction Rate'

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 Definitions

  •

    Dutch Auction

    1. A public offering auction structure in which the price of the offering is set after taking in all bids and determining the highest price at which the total offering can be sold. In ...
    Read More »

  • Auction Market

    A market in which buyers enter competitive bids and sellers enter competitive offers at the same time. The price a stock is traded represents the highest price that a buyer is willing to ...
    Read More »

  • Interest

    1. The charge for the privilege of borrowing money, typically expressed as an annual percentage rate. 2. The amount of ownership a stockholder has in a company, usually expressed as a ...
    Read More »

    • Interest Rate

      The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Interest rates are typically noted on an annual basis, known as the annual ...
      Read More »

    • Treasury Bill - T-Bill

      A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations of $1,000 up to a maximum purchase of $5 million and ...
      Read More »

    • Debt Security

      Any debt instrument that can be bought or sold between two parties and has basic terms defined, such as notional amount (amount borrowed), interest rate and maturity/renewal date. Debt ...
      Read More »

    • Reinvestment Risk

      The risk that future coupons from a bond will not be reinvested at the prevailing interest rate when the bond was initially purchased. Reinvestment risk is more likely when interest ...
      Read More »

    • Municipal Bond

      A debt security issued by a state, municipality or county to finance its capital expenditures. Municipal bonds are exempt from federal taxes and from most state and local taxes, ...
      Read More »

    • Auction Market Preferred Stock - AMPS

      A type of dutch auction that involves a process used to reset the interest payments, or dividends, that are paid on preferred stock or mutual fund shares. The auction usually takes place ...
      Read More »

    • Auction

      A system where potential buyers place competitive bids on assets and services. The asset or service in question will sell to the party that places the highest bid. In most cases, sellers ...
      Read More »

Articles Of Interest

Sponsored links
Hot Definitions
Partner Links
Suggested Definitions