Finance interest: Difference between revisions
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Revision as of 03:41, 2 November 2021
Overview
TODO:
how are interest rates set?
Terminology
yield: return: nominal: real: effective:
Rate Types
Nominal Interest Rate
Does not account for inflation.
if nominal_rate == 5%: 5$ interest on each 100$ paidCalculation, and Terminology:
principal: amount lent compounding-period: interval that interest is added to the principal (ex: quarterly) periodic-return: percentage paid per compounding-period num-periods: number of periods until complete (or in observed timespan ex: 1yr)
Real Interest Rate
Nominal interest rate, with the inflation-rate removed.
Emphasizes value at end of period.
Effective Interest Rate
Annual Interest Rate