Finance interest

Overview

TODO:

how are interest rates set?

Terminology

yield:
return:

nominal:
real:
effective:

Rate Types

Nominal Interest Rate

nominal_rate = 5%
5$ interest for each 100$

• Does not account for inflation

Real Interest Rate

Nominal interest rate, with the inflation subtracted from it.

interest_rate  = 5%/yr
inflation_rate = 2%/yr

${\frac {1+{\text{nominal-interest-rate}}}{1+{\text{inflation-rate}}}}-1$

Effective Interest Rate

Annual Interest Rate