ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Interest rates can be expressed in nominal or real terms. A nominal interest rate equals the real interest rate plus a projected rate of inflation. A real interest rate reflects the true cost of funds to the borrower and the real yield to the lender or to an investor.

Detailed explanation-2: -Periodic rate is the rate charged by a lender each period. It can be quoted as a rate per period, say semiannually, per quarter or per month. For example, a bank could charge 1% per month for a credit card loan.

Detailed explanation-3: -A real interest rate is one that has been adjusted for inflation, to show the real cost and purchasing power of money that is lent or invested. The nominal interest rate shows the price of money and reflects current market conditions. It may be influenced by the Fed funds rate or another benchmark rate.

Detailed explanation-4: -Interest rates on consumer loans are typically quoted as the annual percentage rate (APR). This is the rate of return that lenders demand for the ability to borrow their money. For example, the interest rate on credit cards is quoted as an APR. In our example above, 4% is the APR for the mortgage or borrower.