wikiHow Calculating Interest Glossary * Principal: The amount of money that is borrowed or invested. * Interest: The cost of borrowing money or the return earned on an investment, expressed as a percentage of the principal. * Simple interest: A type of interest calculation that is based solely on the principal amount borrowed or invested, without compounding. * Compound interest: A type of interest calculation that includes the interest earned on the principal, as well as any interest that has been previously earned. * Rate: The percentage of the principal that is charged as interest over a specific period of time, typically expressed annually. * Annual Percentage Rate (APR): The interest rate charged on a loan or investment on an annual basis, including any fees or charges associated with the loan or investment. * Effective annual rate (EAR): The actual interest rate earned or paid on a loan or investment after taking into account compounding. * Nominal rate: The stated or advertised interest rate on a loan or investment, which may not take into account compounding. * Amortization: The process of paying off a loan over time through regular payments, which includes both the principal and interest. * Maturity: The date on which a loan or investment comes due, and the borrower or investor must repay the principal plus any interest that has accrued. * Discount rate: The rate of return used to calculate the present value of future cash flows, often used in discounted cash flow (DCF) analysis. * Present value: The current value of a future payment or series of payments, calculated using a discount rate. * Future value: The value of an investment or loan at a future point in time, calculated using a specified interest rate and compounding period. * Annuity: A series of regular payments made at equal intervals, such as monthly or annually. * Yield: The return on an investment, expressed as a percentage of the initial investment. Page