Questions tagged [interest-rate]

a generic tag for question on rate of interest applicable. Ideally should be accompanied by geography tag and other specific subject tags

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1answer
56 views

When should I use EAR (effective annual rate ) and APR (annual percentage rate)

Okay I know that the effective annual interest rate takes into account the effects of compounding, which reflects the real return. I have 2 word problems: A firm is considering purchasing or leasing ...
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1answer
127 views

Why do business loan interest rates vary that much?

this might be a very basic and stupid question, but I've just recently started considering bank loans for my business (Covid...) and I have no experience with this world whatsoever. I've noticed that ...
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2answers
101 views

Disparity in amount recovered opposed to interest rate

I availed a personal loan of 15000 on mobile banking app with a 16% per annum interest rate and 3 EMIs. As per my calculation, the total repayment should be 15,401. However, the bank has debited 15,...
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1answer
99 views

How often does the treasury department issue bonds and at what prices?

How often does the u.s treasury department issue bonds and at what prices? Does it issue bonds throughout the year with the same annual yield regardless of current bond prices in the bond market, as ...
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2answers
155 views

How can treasury bond ETF increase its value when the FED raises interest rates?

The theory about bonds say that when the interest rates raise, bonds value falls since today's bonds have a higher yield than yesterday's bonds. However, let's take the 2018-2019 period. The FED ...
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2answers
57 views

How does QE reduce long-term interest rates? [closed]

It is said to be that, in a QE programme, the Fed reduces long-term interest rates by purchasing long-term securities. How does this work? Why does buying longer maturity securities from banks reduce ...
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2answers
49 views

Is Margin Interest Rate of a Brokerage Relevant?

I've seen brokerages intensely advertise their margin interest rate, and I've seen this being use to compare them. Why is this important, when you can get a low interest rate loan using in the ...
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2answers
66 views

Impact of rising interest rates on default risk of existing junk bonds?

When interest rates rise, we all know that Math shows that the value of a bond will drop, but that's not my question. Intuition says that there's an indirect risk, in that rising rates might hurt ...
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1answer
39 views

Do low interest rates reduce the growth perspectives after IPOs?

My reasoning is this: A company goes public to raise capital at the price of giving up a certain amount of power and control to the shareholders. Now, if someone founds a company and can borrow risk ...
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1answer
67 views

How are sovereign bond interest rates determined? [closed]

They are a lot of questions about the price of a bond or its yield. How would bonds fare if interest rates rose? Why would I not buy a bond for less than face value? Why invest in long term ...
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1answer
52 views

How does the continuously compounded interest formula work in terms of months?

The continuously compounded interest formula is: Pe^rt Where: P = Principle e = 2.718... r = Annual interest rate t = time in years If instead of an annual interest rate, I got a monthly interest ...
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4answers
1k views

Why are bond ETFs typically recommended for diversifying into bonds?

It seems that the conventional wisdom on portfolio allocation suggests that one should include a bond component in one's portfolio. The usual way that people gain exposure to bonds is by buying a bond ...
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1answer
109 views

Trying to understand the U.S. yield curve and global inflation

With the COVID crisis the FED has lower interest rates a lot: Now, inspecting the US yield curve: It seems to be that this is a normal curve that doesn't flatten too much at the end. Is this correct?...
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1answer
92 views

Bond ETF vs stocks versus interest rates

I read that: stocks move in opposite direction of interest rates bond ETF prices move in opposite directions of interest rates bond ETF move in opposite direction of stocks But how can all three of ...
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1answer
58 views

What is the effect of rising interest rates on a Bond Fund?

For Example: Assume you purchase $1,000 of a bond fund. If the bond fund has an average duration of 5 years and general interest rates increase 1% , what is the impact on the value of the bond. What ...
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4answers
4k views

How can bonds reach 0 and negative interest rates? why would someone buy them? [duplicate]

I know what coupon rate and yield to maturity is but I do not understand very well the interest rate of 0.07% in 1 year Treasury bonds, for example. And how can bonds reach 0 and negative interest ...
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2answers
207 views

cashier check and interest rate

I see news that in Germany banks are asking people to take the money to other banks and need to pay bank negative interest to keep money. A co-worker pointed a strategy that we can possible use in USA,...
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1answer
79 views

Is a bunch of debt now better than distributed debt in the future in terms of paying less in the long run?

This might be too theoretical but it popped into my head this concept for attending University/College. If you had the ability to choose one of the following which is best in terms of you paying ...
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1answer
79 views

Calculate interest rate of mortgage loan that has deferred (suspended) payments

Simple example to illustrate the question: Suppose I have a 30-year $100,000 mortgage loan at a fixed-rate of 5% interest that I took out exactly 10 years ago. I have been making timely payments each ...
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1answer
72 views

How is that this UK corporate bond index has gone down during the last month, if the UK interest rates are historically low?

The Bloomberg Barclays GBP Non-Government Float Adjusted Bond has fallen down dramatically during February 2021. However, the UK interest rates are historically low (font: when will interest rates ...
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2answers
123 views

What formula would I use to calculate the percent of an APR if I knew the payment, principal, and interest?

I'm writing a blog article about potential scenarios in which I might lend someone money and explain how interests work. In my example, I am lending someone $400 and agreed to pay back $100. With no ...
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1answer
83 views

What are the implications of a steepening yield curve? [closed]

Pretty straightforward question, with, I imagine, very complex answers. I know the yield curve basically impacts the entire financial system, but I am looking to understand its macro-effects. Here are ...
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1answer
111 views

Should I sell my car, refinance or trade in?

I am in a weird financial situation and wanted some advice. First of all my wife and I bought a car two years ago for 2,000 over the MSRP and have a higher interest rate about 10%. So in the two years ...
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2answers
117 views

How to convert annual rate to monthly rate for personal investment?

If we have an annual rate of return of 7% for our stock investment, how much is the monthly rate? First of all, why might we want to use monthly rate: that's because we may do monthly contribution of $...
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2answers
50 views

Proper way to annualize returns

Searching for "how to annualize interest rates" on Google leads to the following results: Wikihow's How to Annualize a Percentage Investopedia's Annualized Rate of Return Wikihow ...
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1answer
145 views

Mistake in Investopedia's article on APY?

My question is about James Chen's article on Investopedia, Annual Percentage Yield (APY), last updated on October 17, 2020. It begins by correctly stating the formula for APY: APY = (1 + r / n)^n - 1 ...
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1answer
94 views

Why does paying points cost different amounts depending on how much I'm lowering my rate?

I believe I am quite competent with most matters related to personal finance, but one thing I cannot understand no matter how much I Google is paying points on a mortgage. I talked with a mortgage ...
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2answers
138 views

Logic behind inverse relationship between bond rate and interest rate

I've been reading that there is an inverse relationship between fixed-rate bonds and interest rate. The explanation behind the reasoning is that as interest rates move, the bond has to compete with ...
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2answers
136 views

IBKR charges different interest rates on margin loans denominated in different currencies. Why not take out the loan in the cheapest one?

For example, the top interest rate for margin loans as of today in AUD is currently set to 1.5%, while for ZAR the interest rate is set to 8.057%. That is a huge difference. If I were in South Africa, ...
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9answers
9k views

Is my back-of-the-envelope calculation about taking out a loan to invest into the markets flawed?

With the recent economic struggles due to the Covid-19 pandemic the stock market seems to be even more interesting for personal investments. Taking out a loan might be one of the ways to gather or ...
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0answers
24 views

Choosing between a deep discount bond and a loan with variable interest rate

I was wondering what kind of a method should be used to choose between a deep discount bond and a loan with variable interest. Since one option has a fixed rate, and the other has a variable interest ...
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1answer
59 views

Refinance Calculator - use Interest Rate or APR?

I am using the NerdWallet Refinance Calculator to compare current loan with new loan. https://www.nerdwallet.com/mortgages/refinance-calculator/calculate-refinance-savings My question is should I put ...
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1answer
67 views

Why, when U.S treasury yields rise, so do interest rates (on consumer and business loans)?

What causes the consumer / business loans interest's rate to go up whenever the yields on U.S Treasury bonds go up?
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1answer
169 views

Formula for calculating the monthly payment for a Personal Contract Purchase

How can I calculate the monthly payment for a PCP (Personal Contract Purchase) when given the variables below? 'Amount to be financed' - finance amount APR (annual percentage rate - %) Length of ...
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1answer
167 views

Can banks charge a lower interest rate for loans than for their fixed term savings account and still make profit?

A friend of mine got a loan of 1,000,000 at an interest rate of 10.6% per year for three years and then deposited that 1 million at 3-year fixed-term non-accessible savings account with a return ...
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1answer
99 views

Carry trading using forward contracts

I am curious as to how someone performs a carry trade using forward contracts. I've read that you go long on the currency that has the higher interest rate but this confuses me. In particular, I've ...
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1answer
55 views

Interest Rate Interpretation

If someone says that the six month interest rate is 5% quoted for an act/360 daycount with semi annual compounding, this means that the amount to pay on a loan of $1 to be repaid in a year is 1.025^2, ...
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1answer
99 views

Will a high interest rate consolidation loan improve my score enough to get a low interest rate loan?

As documented elsewhere, I'm paying off debt on credit card accounts totalling roughly 15K and at an average interest rate of roughly 20% My ultimate goal is to get a loan in the 5-8% range with fixed ...
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0answers
40 views

Interest Rate and Present Value Question

I'm trying to answer the hypothetical question posted below (for educational purposes) but I'm very confused about its wording regarding the interest rate. If I assume that the interest is compounded ...
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2answers
208 views

Why are student loan interest rates low when the repayment terms seem worse to lenders?

I've heard that student loan interest rates are typically low compared to other kinds of loans. I think I get the subsidization part of it, i.e. the federal government discounts interest, presumbly to ...
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1answer
39 views

Are there interest rate swaps that are not OTC? [closed]

a. Are there any interest rate swaps that are not classified as OTC ? Could you please give an example. For example: spot starting, benchmark starting, broken dated, etc b. Where is that ...
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0answers
69 views

Why are mortgage refinance interest rates higher than purchase interest rates? [duplicate]

At the moment I'm writing this, Wells Fargo, is quoting a 30-Year Fixed Rate with an interest rate of 2.75% if you are purchasing a home, while the same loan has a rate of 3.25% if you are refinancing....
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1answer
61 views

Unpaid accrual expenses [closed]

Let's say for-profit corporation ALPHA INC. borrowed $1M from person JOHN DOE, who is also an executive officer of the corporation. The corporation ALPHA INC. uses accrual accounting method, while ...
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2answers
86 views

Mathematical method to minimize weighted interest rate on a set of student loans for a given payment? [duplicate]

See image attached. I graduated back in May. Even though my loans are in forbearance right now due to COVID and I'm still in my grace period for payments, I wanted to get a head start on figuring out ...
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1answer
241 views

Why are EU banks hesitant to open an account and take our money?

In Europe, I work for a small/honest internet business. We make a fair profit every month, so we wanted to deposit our profits in different banks, until we decide what to do with the money. To our ...
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0answers
53 views

What drives long duration US Treasury Bond ETF prices?

I am looking at TLT, for example, a long duration (with average maturity around 25 years) bond ETF. I noticed that the fed funds rate (or the "interest rate" from federal reserve) has been ...
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3answers
223 views

Does it make sense to ladder CD's if the APY is the same for different periods?

I understand that CD ladders are a mechanism to take advantage of the various interest rates offered for different time periods. Given that, is there any point investing in longer and longer term CD's ...
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3answers
171 views

Why are bond interest rates set at the interest rate set by the Fed?

I have a question about bonds: why do corporations, municipalities, and the treasury set bond interest rates at the current U.S Federal Reserve interest rate? Also, how does the Fed set interest rates?...
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0answers
36 views

Have changes to mortgage standard variable rates ever diverged much from changes to base rate?

Historically, although SVRs tend to be a few percent above base rate, has any lender's SVR ever made a drastic change that wasn't caused by a change in base rate? This is in the context of risk of ...
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2answers
125 views

What determined the "cost of borrowing money" or the interest rate in a gold-based economy [closed]

In the modern economy, the central bank decides the cost of borrowing money using interest rates along with other several tools and technic. But I was wondering, in a gold-based economy (not the gold ...

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