Difference Between Yield And Interest Rate

Difference Between Yield And Interest Rate.At any time in life, all people without exception have had to borrow money from relatives or an institution to carry out a project in their life. For example, when a child asks his parents for money to buy sweets, or when a good is mortgaged so that the bank provides the necessary liquidity to cover some expenses.

In the same way, many companies or government entities need money to carry out their projects , have funds to invest or to improve a service. Of course, these institutions need large sums of money, which a bank cannot supply.

Difference Between Yield And Interest Rate

Yield and interest rate are both measures of return on investment, but they are not the same thing.

Interest rate is the cost of borrowing money, expressed as a percentage of the amount borrowed. It is the amount of interest that a lender charges a borrower for the use of their money. For example, if you borrow $1,000 at an annual interest rate of 5%, you will need to pay back $1,050 at the end of the year.

Yield, on the other hand, is the return on investment, expressed as a percentage of the amount invested. It is the total amount of income earned on an investment, including interest and any other gains, divided by the initial investment amount. For example, if you invest $1,000 and earn $50 in interest over the course of the year, your yield would be 5%.

In other words, interest rate is the cost of borrowing money, while yield is the return on an investment. Yield takes into account both the interest earned on an investment and any other gains, such as dividends or capital gains, while interest rate only considers the cost of borrowing money.

by Abdullah Sam
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