what is the difference between interest rate and discount rate?
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The interest rate is the amount charged by a lender to a borrower for the use of assets. The lenders here are the banks and the borrowers are the individuals. Whereas, Discount Rate is the interest rate that the Federal Reserve Banks charges to the depository institutions and to commercial banks on its overnight loans.
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Discount points are fees that allow you to buy down your interest rate, therefore lowering your monthly payment. Origination fees are points the lender uses to cover overhead costs for the loan. Origination and discount point fees will be paid at closing.
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The discount rate is the interest rate used to determine the present value of future cash flows in a discounted cash flow (DCF) analysis. ... Many companies calculate their weighted average cost of capital (WACC) and use it as their discount rate when budgeting for a new project.
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Discount Rate: Summary of Key Differences. ... The discount rate is not an index, so for loans that they make to each other banks use the federal funds rate, without adding a margin. The prime rate is a short-term rate; but not as short as the discount rate, which is typically an overnight lending rate.
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Interest Rate. The difference between an APR and an interest rate is that the APR equals the interest rate plus other loan costs. The APR is more representative of the total annual cost that you'll end up paying for borrowing money.
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The interest rate is the cost of borrowing the principal loan amount. ... The APR is a broader measure of the cost of a mortgage because it includes the interest rate plus other costs such as broker fees, discount points and some closing costs, expressed as a percentage.
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The terms are often used interchangeably, but there are key differences between the two. A savings account will typically pay variable rates of interest, whereas a bond is normally fixed for a set term.
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In personal finance, a finance charge may be considered simply the dollar amount paid to borrow money, while interest is a percentage amount paid such as annual percentage rate (APR). These definitions are narrower than the typical dictionary definitions or accounting definitions.
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The difference between Discount and Reduction. When used as nouns, discount means a reduction in price, whereas reduction means the act, process, or result of reducing. ... Discount is also adjective with the meaning: specializing in selling goods at reduced prices.
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Bond Yield Rate vs. Coupon Rate: An Overview. A bond's coupon rate is the rate of interest it pays annually, while its yield is the rate of return it generates. A bond's coupon rate is expressed as a percentage of its par value.
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A substantial difference between the interest rate and the APR means one or both of two things: your loan uses compound interest or it includes hefty loan fees in addition to interest.
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Spot rate is the yield-to-maturity on a zero-coupon bond, whereas forward rate is the interest rate expected in the future.
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A credit card's interest rate is the price you pay for borrowing money. For credit cards, the interest rates are typically stated as a yearly rate. This is called the annual percentage rate (APR). On most cards, you can avoid paying interest on purchases if you pay your balance in full each month by the due date.
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The interest rate is the percentage amount most people take notice of when they try to compare home loans. ... The comparison rate is a percentage amount calculated by adding together the interest rate, plus any additional fees and charges that may apply to the loan.
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Coupon Rate vs Interest Rate Head to Head Difference The coupon rate is calculated on the face value of the bond which is being invested. The interest rate is calculated considering the basis of the riskiness of lending the amount to the borrower. The coupon rate is decided by the issuer of the bonds to the purchaser.
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The key difference between discounted and undiscounted cash flows is that discounted cash flows are cash flows adjusted to incorporate the time value of money whereas undiscounted cash flows are not adjusted to incorporate the time value of money.
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At its most basic level, the discount rate represents the rate (usually expressed as a percentage) used to determine the present value of a future cash flow. ... In other words, the discount rate equals the risk free rate + the required rate of return.