Author Topic: Magkaiba ba ang interest rate and rate of return?  (Read 1132 times)

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NeoGemini

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Magkaiba ba ang interest rate and rate of return?
« on: June 20, 2012, 10:53:14 AM »
Can somebody explain to me the difference between interest rate and rate of return or parehas lang sya?

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Magkaiba ba ang interest rate and rate of return?
« on: June 20, 2012, 10:53:14 AM »

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IntraLover

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Re: Magkaiba ba ang interest rate and rate of return?
« Reply #1 on: June 20, 2012, 10:55:28 AM »

Interest rate = how much you will get back on top of what you invest and it's usually specified AHEAD of time and more or less guaranteed. For eg, when you invest in a bond that is said to pay 3% interest, you know you will get 3% when your investment matures.

Rate of return = how much you will end up getting after taking into account all costs (eg, transaction fees, management fees, currency conversion fees) ... also, it doesn't need to be interest based investment (it can be the profit you get from running a business) and is usually calculated AFTER the fact or at the end of the investment.

For eg, you invest $1000 in a CD that pays 3% interest... and the end of the year, you sell it and pays $10 "sell fee"... that means you make only $20 or in other words, the rate of return in 2%.

Ken312

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Re: Magkaiba ba ang interest rate and rate of return?
« Reply #2 on: June 20, 2012, 10:57:38 AM »
Yes, Interest Rate and Rate of Return is the same. It is the rate of income as a percentage of principal. The only difference is that Interest Rate is the term used by Borrowers while Rate of Return is the term used by Investor. Meaning it differentiate only on the mode the income is earned.

If A for example borrow money from B for 30 days with 2% interest. A pays 2% interest while B earns 2% return.

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Re: Magkaiba ba ang interest rate and rate of return?
« Reply #2 on: June 20, 2012, 10:57:38 AM »

 

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