Definition
Interest rates represent the cost of borrowing money or the return on lending, expressed as an annual percentage. The federal funds rate set by the Fed influences all other rates. Lower rates stimulate economic activity by making borrowing cheaper, while higher rates slow the economy to control inflation. Interest rates have pervasive effects: impacting bond prices (inverse relationship), stock valuations (through discounting), real estate affordability, and currency values. Changes in rate expectations often move markets more than actual changes.
Formula
Example
When rates rise from 2% to 4%, a company's $100M debt doubles in interest expense. Bond prices fall as existing bonds become less attractive. Stock valuations may compress as the discount rate increases.
FAQ
What is Interest Rates?
The cost of borrowing money or the return for lending money, typically expressed as a percentage.
How do you calculate Interest Rates?
A common formula for Interest Rates is: 单利 = 本金 x 利率 x 时间; 复利 = 本金 x (1 + 利率)^时间 - 本金
Why is Interest Rates important?
Interest Rates helps investors evaluate macroeconomic and make more informed decisions.