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Real interest rate vs nominal interest rate?
Real interest rate = nominal interest rate- inflation rate. If a burger in 2007 is for $100 and if the same burger in 2008 is for $110 then Inflation rate is 10% for 2007 If interest rate in 2007 is 13% and in 2008 interest rate is 14% real interest would be only 14%-10% = 4% That is in real value the return on investment is only 4% because purchasing power of 10% is decreased because of inflation
How are nominal interest rate and real interest rate related?
The nominal interest rate is the baseline interest rate attached to an investment.The real interest rate is connected to the rate of inflation over the duration of your investment.The basic formula for determining the Real Interest Rate is:Real Interest Rate = Nominal Interest Rate - InflationHere's a basic example: If I buy a one-year, $100 savings bond with a 6% interest rate of return, I should receive $106 at the end of the year. This percentage--6%--is my nominal interest rate.Inflation changes the value of the total you receive at the end of the year. Inflation measures the rate of increase in the cost of goods and services; if you buy a table today for $100 and you buy the same table in a year for $103, that equals a 3% rate of inflation.If this happens the same year you are waiting for your bond to mature, you will still receive $106, but goods and services now cost $3 more than they did a year ago, which effectively reduces the value of your profit to $103. This means your real interest rate is actually 3%.3% Real Interest = 6% Nominal Interest - 3% Inflation
Are interest rate and coupon rate the same?
Actually they mean the same thing but they are used in two totally different situations. Interest Rate is the money paid by a bank that has accepted a deposit from a Customer. Coupon Rate is the money paid by a person who has issued Bonds to people in return for the money they have given him.
How does the yield to maturity on a bond differ from the coupon yield or current yield?
The rate of return anticipated on a bond if held until the end of its lifetime. YTM is considered a long-term bond yield expressed as an annual rate. The YTM calculation takes into account the bond's current market price, par value, coupon interest rate and time to maturity. It is also assumed that all coupon payments are reinvested at the same rate as the bond's current yield. YTM is a complex but accurate calculation of a bond's return that helps investors compare bonds with different maturities and coupons.
How can bonds issued by two companies paying same contractual interest rate be issued at different prices?
To calculate present value of the bond you also need to know market interest rate. If , for example these companies were issuing their bonds in the different time and market interest rate was different then bond could be sold at premium(the bond will cost more then its face value), par (same as face value), and discount (bond will cost less then face value.)
Are interest rate and rate of return the same?
Yes, the interest rate and rate of return are exactly the same.
Real interest rate vs nominal interest rate?
Real interest rate = nominal interest rate- inflation rate. If a burger in 2007 is for $100 and if the same burger in 2008 is for $110 then Inflation rate is 10% for 2007 If interest rate in 2007 is 13% and in 2008 interest rate is 14% real interest would be only 14%-10% = 4% That is in real value the return on investment is only 4% because purchasing power of 10% is decreased because of inflation
How can you have a negative real rate of return over the same period?
If the rate of inflation exceeds the nominal rate of return during the period in question, then the real rate of return can be negative.
What are the best returns for certificates of deposits?
This is subjective. The best rate of return would be an interest rate higher or equal to an interest rate one would get for the same amount of time with the same risk.
How are nominal interest rate and real interest rate related?
The nominal interest rate is the baseline interest rate attached to an investment.The real interest rate is connected to the rate of inflation over the duration of your investment.The basic formula for determining the Real Interest Rate is:Real Interest Rate = Nominal Interest Rate - InflationHere's a basic example: If I buy a one-year, $100 savings bond with a 6% interest rate of return, I should receive $106 at the end of the year. This percentage--6%--is my nominal interest rate.Inflation changes the value of the total you receive at the end of the year. Inflation measures the rate of increase in the cost of goods and services; if you buy a table today for $100 and you buy the same table in a year for $103, that equals a 3% rate of inflation.If this happens the same year you are waiting for your bond to mature, you will still receive $106, but goods and services now cost $3 more than they did a year ago, which effectively reduces the value of your profit to $103. This means your real interest rate is actually 3%.3% Real Interest = 6% Nominal Interest - 3% Inflation
Are interest rate and coupon rate the same?
Actually they mean the same thing but they are used in two totally different situations. Interest Rate is the money paid by a bank that has accepted a deposit from a Customer. Coupon Rate is the money paid by a person who has issued Bonds to people in return for the money they have given him.
Why the discount bond is not a bargain?
Because the rate of return it is still a function of market influences. Whether a bond is premium or discount is merely a reference of the coupon rate vs the real market interest rate. If the issuer sets their coupon rate below the market rate, it is said to be discounted. Set the coupon rate above the market interest rate and it is said to be premium. An invester pays below face value for a discount bond and above for a premium. In the end, the invester receives a return on their investment that aligns with the real market interest rates. Premium vs Discount is merely a reference point from where you start - you still end up in the same place.
What are the two different types of interest rates?
A fixed rate has the same rate of interest the entire life of the loan. A fluctuating rate varies with the prime interest rate.
How do you use excel function for Modified Internal Rate of Return?
The MIRR function returns the modified internal rate of return for a series of cash flows. The internal rate of return is calculated by using both the cost of the investment and the interest received by reinvesting the cash. The cash flows must occur at regular intervals, but do not have to be the same amounts for each interval.MIRR(range,finance_rate,reinvestment_rate)range = range of cells that represent the series of cash flowsfinance_rate = interest rate that you pay on the cash flow amountsreinvestment_rate = interest rate that you receive on the cash flow amounts as they are reinvested
What are the major differences between compound interest loan and simple interest loan?
With compound interest, the interest due for any period attracts interest for all subsequent periods. As a result, compound interest, for the same rate, is greater.With compound interest, the interest due for any period attracts interest for all subsequent periods. As a result, compound interest, for the same rate, is greater.With compound interest, the interest due for any period attracts interest for all subsequent periods. As a result, compound interest, for the same rate, is greater.With compound interest, the interest due for any period attracts interest for all subsequent periods. As a result, compound interest, for the same rate, is greater.
Is the interest rate and discount rate in present value?
yes they are the same
You nominal rate the same as true rate?
No. Nominal interest rate is the rate before adjustments for inflation.
