Finance interest: Difference between revisions
From wikinotes
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== Real Interest Rate == | == Real Interest Rate == | ||
<blockquote> | <blockquote> | ||
Accounts for inflation. | |||
<math> | <math> | ||
\frac | |||
{1 + \ | {1 + \texttt{nominal-interest-rate}} | ||
{1 + \ | {1 + \texttt{inflation-rate}} | ||
- 1 | - 1 | ||
</math> | </math> |
Revision as of 03:51, 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.
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)if nominal_rate == 5%: 5$ interest on each 100$ paidReal Interest Rate
Accounts for inflation.
Effective Interest Rate
Annual Interest Rate