Rates in General

def. Rate is a simple abstraction of interest rate so that we can calculate things easily.

e.g. when banks say they have an APR (Annual Percentage Rate) of 10.99%, their actual rate [=Annual Percentage Yield] is:

def. Required Rate of Return (RRR) (=Discount Rate).

  • RRR of asset: Minimum amount of profit that the investor will accept
  • RRR in general: Average rate of similar-risk investments in the market

def. Internal Rate of Return (IRR).

  • Annual rate of growth of an investment.
  • Solution of the equation
    • See NPV calculations

Interest Rate


  • Discount rate
  • Price of Money

Types of interest rates:

  1. Yield: interest rate on bonds
  2. Mortgage Prime rates
  3. LIBOR (inter-bank interest rates)
  4. Federal Funds Rate