Info 1: interest rate definition
Info 2: how interest rate works
Info 3: interest rate vs interest amount
Info 4: example of interest rate
Opening information:
Interest rate breaks into two words interest and rate. interest means the amount of money above its principal debt amount, rate means percentage. Interest rate means the percentage of amount which is paid to debts above than principal amount loan.
So now let’s have a look at what is an interest rate, how the interest rate works and involved in the public market, and what is the difference between the interest rate and interest amount, finally one brief example about the interest rate.
Info 1: interest rate definition
Mr.Galion is the person who is an entrepreneur and CEO of his own business, he has been running an Industry for nearly 12 years.
The debts of such an organization are 120 million dollars, and the holding assets would be 430 million dollars in the whole organization.
At the same time, Galion also had spent millions of dollars issuing bonds of contract to the public people paying more money than the face value of such bonds.
Next, Mr. Galion’s organization made 20 million dollars in the net income of the company, but it’s an amount that’s always used to grow the business when they didn’t need money for some reason and couldn’t able to use it efficiently they would pay back to their shareholders as dividends.
They had issued about 2.3 million dollars worth of bonds to the public people which are paid about the 6 percent extra amount for the holding 2.3 million dollars face value. This means 138,000 dollars extra paid to their bondholder Mr. Galion’s business at each term of the year.
Here the percentage of money paid by Galion business to the debts and their bondholders above a loan money or face value of bonds is what is named the interest rate. So now let’s dive into how the Interest rate works and involved in the public market.
Info 2: how interest rate involved in the public market
The interest rate doesn’t represent any specific fixed object or thing, instead, they are the percentage of the amount that is paid or received above the principal of the debt money.
Therefore any of the people who had a percentage of money paid to the business or bank or institution for the debts or receive the amount for their debt holding like a loans, contract, bonds above it’s original value which they are normally consider as an interest rate.
Suppose the percentage of the amount would be earned by any of the stock Investors to put the money on the business equity shares or commodities which are they are not categorized as an Interest rate.
Indeed it’s a return, because money which are made by Investment is not a pre-determined set of regular payments, despite the predicted amounts that are paid only when the contract of trade or business is profitable or else not.
Stock investors or public Investors are involved in speculating the security by using high leverage through the Investment brokerage account from money for lending to increase the profits more than one number times.
Which that borrowed money charges overnight fees as interest fees on the lending leverage amount are also elaborated as an interest rate on behalf of investment charges or returns.
Next public Corporations that pay hundreds and millions of dollars for the bank without any principal payment for loan amount, that money are illustrated in the category of Interest.
Most people are confused about the interest rate, so let’s jump into the key difference in it anyway.
Info 3: interest rate vs interest amount
The interest rate refers to the part of the percentage amount on the debts, where such interest rate occupied any amount of money based on the size difference of the one debt.
On the other side, interest amounts are money which are not a percentage, in spite they are money that is paid depending on the percentage that is equal to the debt value. To make you more clear about the interest rate, let’s look into one brief example below.
Info 4: example of Interest rate
Say the company U is the one that offers the bonds to the public people. Among their hundreds and thousands of bondholders, you are also the one who is holding some amount of Company u debt instruments.
Such corporate bonds would be paying the 7 percent amount of $70 nearly with a face value of 1000 dollars of each holding debt. Here 70 dollars is an interest amount and 7 percent is an interest rate in this example.