What Is An Interest Rate (IR)?

The rate of interest is the amount charged on any debt by the creditor to the borrower. An interest rate is expressed in percentage points (%) or in basis points (bps), and is usually charged on an annual rate. The rate of interest charged will usually depend on the credit-worthiness or riskiness of the borrower. A high-risk borrower will be charged a higher rate of interest than a low risk borrower, all other things being equal. An example of interest rates is as follows:

  • An investor wishes to borrow $1,000,000 to invest in the stock market
  • A bank loans the investor $1,000,000 for 5 years at an annual rate of 5%
  • The investor has to pay $50,000 per year to the bank in interest as well as the $1,000,000 at the end of the 5 years
  • If the investor earns more than 5% per year, he will make a profit, otherwise he will lose money or break-even

To learn more about this concept and become a master at bonds and fixed income, you should check out our Bond Course - Fixed Income (coming soon!).

 

Related Terms

Return to Finance Dictionary

 

 

Start Discussion

Popular Content See all

Received my PWP rejection email!
+92IBby Prospective Monkey in Investment Banking - Mergers and Acquisitions">Prospect in IB-M&A
Is Evercore the next Bulge Bracket bank?
+24IBby Intern in Investment Banking - Mergers and Acquisitions">Intern in IB-M&A
Biggest Regret in Undergrad
+21IBby Prospective Monkey in Investment Banking - Mergers and Acquisitions">Prospect in IB-M&A
Is Liontree the next bulge bracket bank?
+17IBby 1st Year Analyst in Sales & Trading - Equities">Analyst 1 in S&T - Equities
Virtual Summer Interns - which banks sent you WFH gear?
+15IBby Intern in Investment Banking - Industry/Coverage">Intern in IB - Ind

Total Avg Compensation

October 2020 Investment Banking

  • Director/MD (17) $704
  • Vice President (49) $326
  • Associates (264) $228
  • 3rd+ Year Analyst (36) $168
  • 2nd Year Analyst (147) $159
  • Intern/Summer Associate (136) $141
  • 1st Year Analyst (579) $130
  • Intern/Summer Analyst (555) $82

Leaderboard See all

1
LonLonMilk's picture
LonLonMilk
98.4
2
Jamoldo's picture
Jamoldo
98.3
3
Secyh62's picture
Secyh62
98.2
4
CompBanker's picture
CompBanker
97.8
5
redever's picture
redever
97.7
6
Addinator's picture
Addinator
97.6
7
Edifice's picture
Edifice
97.6
8
NuckFuts's picture
NuckFuts
97.5
9
frgna's picture
frgna
97.5
10
bolo up's picture
bolo up
97.5