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Risk-free rate. The risk-free rate of return, usually shortened to the risk-free rate, is the rate of return of a hypothetical investment with scheduled payments over a fixed period of time that is assumed to meet all payment obligations. [1]
One of the most common reference rates to use as the basis for applying floating interest rates is the Secure Overnight Financing Rate, or SOFR. [2] The rate for such debt will usually be referred to as a spread or margin over the base rate: for example, a five-year loan may be priced at the six-month SOFR + 2.50%.
Prime rate. A prime rate or prime lending rate is an interest rate used by banks, usually the interest rate at which banks lend to customers with good credit. Some variable interest rates may be expressed as a percentage above or below prime rate. [1] : 8.
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]
Neutral rate of interest. The neutral rate of interest, previously called the natural rate of interest, [1] is the real (net of inflation) interest rate that supports the economy at full employment /maximum output while keeping inflation constant. [2] It cannot be observed directly.
Bank Indonesia. Retrieved 4 May 2024. ^ "Iran officially raises interest rate to 23%". ParsToday. 31 January 2023. Retrieved 4 February 2023. ^ "The Monetary Committee decides on January 1, 2024 to reduce the interest rate by 0.25% to 4.5%". Bank of Israel. 1 January 2024.
Interest rate swap. In finance, an interest rate swap ( IRS) is an interest rate derivative (IRD). It involves exchange of interest rates between two parties. In particular it is a "linear" IRD and one of the most liquid, benchmark products. It has associations with forward rate agreements (FRAs), and with zero coupon swaps (ZCSs) .
The force of interest is less than the annual effective interest rate, but more than the annual effective discount rate. It is the reciprocal of the e -folding time. A way of modeling the force of inflation is with Stoodley's formula: δ t = p + s 1 + r s e s t {\displaystyle \delta _{t}=p+{s \over {1+rse^{st}}}} where p , r and s are estimated.