Final answer:
The effective interest rate returned from a first trust deed investment is known as the actual rate of return, which includes capital gains and interest over a period, and differs from the expected rate of return, a projection based on various investment considerations.
Step-by-step explanation:
The effective interest rate returned from a first trust deed by an investor is typically referred to as the actual rate of return. This encompasses the total rate of return on an investment, which includes both capital gains and interest payments made over a certain period. An investor looks for a return as compensation for the investment risk, delay in consumption, inflation, and as a potential increase in value (capital gains) from the property or investment. The expected rate of return is a projection of how much an investment is expected to yield, but the actual rate of return is what the investor ultimately receives, which may be influenced by various factors such as market conditions, the borrower's creditworthiness, and prevailing interest rates.
The face value of an investment is the amount promised to the investor by the issuer, and it is separate from the rate of return, which is the actual yield over time. Investors in high-risk ventures, such as high yield bonds or junk bonds, anticipate higher returns to compensate for the added risk. The involvement of financial intermediaries, like banks, can also impact the actual return, as they facilitate the flow of funds between savers and borrowers while looking for profitable investment opportunities, such as an initial public offering (IPO) or other securities.