Financial Terms / interest rate

# Understanding Interest Rates

Interest rate affects the cost of a mortgage, including mortgage insurance.

## Formula

``Interest rate = Effective Interest Rate / Principal``

## How do I calculate the interest rate?

`Knowing how to calculate interest rate is important for understanding a company’s financial situation. Companies carry different types of debt, and it is easy to calculate a company’s interest rate from its income statement and balance sheet. To calculate the interest rate, one can use the formula `Interest rate = Effective Interest Rate / Principal`. With the help of spreadsheet programs such as Sourcetable, the process of calculating the interest rate can be made much simpler.`

## What is the CMT Yield?

`The CMT yield is the read from the Treasury's daily par yield curve. It is used to set ARM rates and calculate the par yield curve.`

## How is CMT Used?

`The CMT rates are used to set ARM rates and to calculate the par yield curve.`

## What Formula is Used to Calculate the Par Yield Curve?

`The formula used to calculate the par yield curve is `Par Yield = (CMT Yield + Spread)/(1 + Margin)`.`

## Key Points

How do I calculate interest rate?
`Interest rate = Effective Interest Rate / Principal`
Nominal Interest Rate
The nominal interest rate is the stated interest rate of a bond or loan. This rate is a monetary price that borrowers pay lenders for borrowing money.
Effective Interest Rate
The effective interest rate includes the impact of compounding and inflation. This rate is the actual return that lenders receive on the money that they loan out.