Finance interest
From wikinotes
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.Failed to parse (SVG (MathML can be enabled via browser plugin): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle \text{real-interest-rate} = \frac {1 + \text{nominal-interest-rate}} {1 + \text{inflation-rate}} - 1 }
Effective Interest Rate
Annual Interest Rate