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In mathematics, a rate is the quotient of two quantities in different units of measurement, often represented as a fraction. If the divisor (or fraction denominator) in the rate is equal to one expressed as a single unit, and if it is assumed that this quantity can be changed systematically (i.e., is an independent variable), then the dividend (the fraction numerator) of the rate expresses the ...
The nominal interest rate, also known as an annual percentage rate or APR, is the periodic interest rate multiplied by the number of periods per year. For example, a nominal annual interest rate of 12% based on monthly compounding means a 1% interest rate per month (compounded). [2] A nominal interest rate for compounding periods less than a ...
These rates are usually the annualised compound interest rate alongside charges other than interest, such as taxes and other fees. Examples Compound interest of 15% on initial $10,000 investment over 40 years Annual dividend of 1.5% on initial $10,000 investment $266,864 in total dividend payments over 40 years
An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum ). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, the compounding frequency, and the length of time over which it is lent, deposited, or borrowed.
In finance and economics, interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. [1] It is distinct from a fee which the borrower may pay to the lender or some third party.
In financial mathematics and economics, the Fisher equation expresses the relationship between nominal interest rates, real interest rates, and inflation. Named after Irving Fisher, an American economist, it can be expressed as real interest rate ≈ nominal interest rate − inflation rate. [1] [2]
The effective interest rate ( EIR ), effective annual interest rate, annual equivalent rate ( AER) or simply effective rate is the percentage of interest on a loan or financial product if compound interest accumulates in periods different than a year. [1] It is the compound interest payable annually in arrears, based on the nominal interest rate.
The accumulation function a ( t) is a function defined in terms of time t expressing the ratio of the value at time t ( future value) and the initial investment ( present value ). It is used in interest theory. Thus a (0)=1 and the value at time t is given by: where the initial investment is. For various interest-accumulation protocols, the ...