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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Is this simplistic interest rate used?

Suppose A is the initial investment, r is the interest rate (r > 0). The target interest rate model is then A(1 + r)^t, where t is the time since the moment at which the interest rate started to ...
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Why are returns on term deposits so much higher in Canada (than in other countries)?

If one searches for GICs (Canadian equivalent of a term deposit) on the Canadian financial service comparison site ratehub.ca for 3 year deposits with 10 000 CAD as investment capital, one will come ...
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How do interest rates affect bond coupon rates?

Let's say interest rates are at 2% and I buy a 10-yr bond with a face value of $1,000 and coupon of $50. The coupon rate will be $50/$1,000 = 5%. Then, let's say that one year later interest rates ...
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6 votes
3 answers
2k views

Scenarios in 10 years of fixed vs. adjustable rate mortgage (ARM) at the same rate?

I would like to get a list of possible scenarios when it comes to refinancing that I might not have known or considered at the end of the adjustment period. I am new to mortgages and ARMs I am ...
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3 votes
1 answer
195 views

Effective interest rate of two loans

Let's say I have two loans and want to calculate the "effective" interest rate. To make things easy let's assume they have the same principal and the same terms (30 years), just two ...
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1 answer
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Relationship between interest rates and DCF discount rates

I've been reading that interest rates lower the over future cash flows of equities, hence their decline as money can be moved elsewhere for better returns. What is the direct relationship between ...
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1 answer
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CAP rates, risk, and interest rates

I'm doing some basic reading about real estate, and I've come across two principles that articles tend to reiterate, but I don't understand why these principles are necessarily the case: "A ...
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1 answer
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I cannot calculate this because I don't have the discount rate

What is the NPV of the following investment? Upfront, it requires an investment of 1598. Then, it generates a cash flow of 774 after one year, 659 after two years, and 623 after three years. After ...
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1 vote
1 answer
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Interest only mortgage with extra payment towards principle

I am planning to take 30 year term 10 year interest only mortgage. I know following are pros can cons of this approach: Pros: possible free money, especially given low interest rates lower payments (...
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5 votes
3 answers
2k views

Do you have to take the exact loan amount your are pre approved for?

If you get preapproved for say, a 100k house loan, but then find a house for 110k, are you contractually bound to pay at most a 10k down payment? or are you able to still pay a 20% down payment of 20k ...
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3 votes
1 answer
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I Savings Bond Rate Question

With the I Savings Bonds rate at 7.12%, I'm thinking about buying some. From my understanding: You have to hold them for at least one year If you cash them out before 5 years, you lose the previous ...
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2 answers
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How long will it take to pay off a Virgin Money Transfer principal balance of £ 5,816.21 at 23.29% variable interest?

I'm thick when it comes to finances. I don't understand how interest and compound interest works, so I'm seeking help. I have a Virgin Money Transfer principal balance of £ 5,816.21. Interest rate ...
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4 votes
1 answer
859 views

How to buy bond index funds only when they are mostly composed by higher interest rate (%) bonds

Vanguard states that their index funds are re-balanced every 4 months or when the management (exceptionally) considers it necessary. I imagine the FED raising rates several times during 2022 and 2023 ...
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1 vote
1 answer
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Are inflation protected bond funds a hedge against rate hikes?

Generally speaking, I'm a buy and hold index fund investor, with a long-term time horizon (20+ years). I currently keep ~12% of my account in intermediate-term bond funds. I don't usually make big ...
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1 vote
1 answer
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To buy or rent when interest rates and rents are rising? [duplicate]

I have heard that people use real estate as a hedge against inflation but what's the rational thing to do when, the stock market is dropping, housing is getting expensive (to buy and to rent) and ...
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0 votes
2 answers
68 views

Calculate interest rate APR (compound and normal) on a daily basis

Let's assume there is an interest rate of 0.61%. So, the interest is 0.61% AER which is then divided by 365 and paid daily. The interest rate is for the year, not per day however interest is paid ...
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2 votes
1 answer
46 views

How to calculate monthly savers interest profit

I am intrigued to understand how the monthly saver accounts work. For instance, I have seen one where you have to put maximum 400 pounds a month for a period of 12 months and there is an interest of 1....
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2 votes
1 answer
256 views

Present Value of a Perpetuity

I have a very basic understanding of Present Value of a Perpetuity. Present value = Amount / interest I have 2 questions below: (a) Suppose that the annual interest rate is 10%. What is the value of ...
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How to obtain zero-rate(spot-rate)curve from YTM matrix

I'm studying about the yield curve now. In particular, I am studying bootstrapping methods to obtain spot rate curve(zero curve). If several bonds and their coupon rate are given, I know how to ...
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Invest 100k in the Short Term Until It Could be Used to Buy an Investment Real Estate Property

I have a little more than 100k in my savings account. I have been keeping (and accumulating) that money in the savings account hoping to invest it in some kind of an asset (real estate etc.). However, ...
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2 votes
2 answers
208 views

Why is VTIP not tracking inflation?

A while back I moved a portion of my wealth into inflation protected bonds as I needed a store of value that could preserve my purchasing power through the current high rates of inflation we were ...
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0 answers
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Home Loan interest rate conversion - High spread

I have got a home loan from Axis bank (India) 5 years ago. Recently a friend of mine told me that they are reducing interest rates if you speak to the bank and pay a nominal amount of 5900 Rs by ...
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2 answers
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Calculating Effective Annual Interest Rate & Annual Percentage Rate with fees (in R)

Problem How to calculate Effective Annual Interest Rate (EAR) and Annual Percentage Rate (APR) with fees (in R) ? I am interested in getting to know how much I am actually paying interest when fees ...
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1 vote
1 answer
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Mismatch Between FV Function and the Bankrate Simple Savings Calculator

I'm trying to replicate the functionality of the Bankrate Simple Savings Calculator in Google Sheets. I've assumed that I need to use the FV function, but I can't get the numbers to match exactly. ...
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1 vote
1 answer
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How to find CAGR from absolute return in a given duration?

What is the formula to figure out "Compound Annual Growth Rate (CAGR)" from absolute returns? Say, if 100% is the absolute return in 5 years tenure, then how would I find what is the CAGR ...
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1 answer
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IRR vs Interest rate v loan

Probably a simple answer, but I don't seem to get it. I've always been taught the IRR is the equivalent of the rate i'd get if I invest the same amount at a bank. (Or the % I need to compare my ...
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How does risk-free interest rate and interest rate differ on their impact on stock price?

According to investopedia: how interest rates affect stock market, "Higher interest rates tend to negatively affect earnings and stock prices (with the exception of the financial sector)." ...
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2 votes
3 answers
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In theory, what effect should an increase in the national interest rate have on corporate bonds?

The Bank of England is soon to announce if it's going to put its interest rate up or not. I own a lot of UK corporate bonds. Specifically, I have a big investment in one of those unit trusts that ...
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4 votes
3 answers
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Finance Test: How to solve for interest rate? (Annuities)

Hello thanks for helping me! Here's the problem: You are told that if you invest $11,000 per year for 23 years (all payments made at the end of each year), you will have accumulated $366,000 at the ...
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1 vote
2 answers
117 views

Finance Exam: Isn't the solution for this problem wrong?

Hey could you help me out, I think the given solution to this problem is wrong: Find the present value of $3000 due in 5 years and 6 months if the money is worth 4.5% compounded quarterly. Solution PV ...
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5 votes
1 answer
354 views

How do you factor in inflation when calculating internal rate of return on an investment?

Say you invest $1000 into a venture on day 1. Then you invest another $1000 on day 365. Then, on day 730, its market value is worth $4000. If I were to put these numbers into an Excel spreadsheet like:...
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What are the terms for these interest rate types? [closed]

I'm a beginner, so I don't know the right term for the following interest rates: The interest rate between the Federal (in US) or Central bank and local banks? Between banks themselves? Between ...
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1 vote
0 answers
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Why do we have *daily* series of T-bill yields?

I understand that each week the US Treasury issues new T-bills at different maturities (1-month, 3-months, 1-year, etc). As far as I understand, this issuance happens every Tuesday. After the auction, ...
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-1 votes
3 answers
398 views

how many years does S&P take to double your money?

As per rule of 72, if S&P interest rate is 10%, money should double in 7.2 years. But there are other websites which show different numbers, such as this one says 9.2 years. I understand inflation ...
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0 votes
1 answer
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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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0 votes
1 answer
135 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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3 votes
2 answers
103 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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-1 votes
1 answer
139 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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0 votes
2 answers
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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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  • 1,189
0 votes
2 answers
63 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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0 votes
2 answers
53 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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1 vote
2 answers
75 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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0 votes
1 answer
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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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1 vote
1 answer
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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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  • 111
1 vote
1 answer
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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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4 votes
4 answers
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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2 votes
1 answer
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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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  • 1,189
3 votes
1 answer
112 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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0 votes
1 answer
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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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14 votes
4 answers
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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