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interest rate

definition

The return on loaned money, expressed as a percentage of the principal. Companies that issue bonds, certificates of deposit, and other debt instruments pay a fixed or variable interest rate in exchange for the privilege of using an investor's money. Likewise, an investor pays a fixed or variable interest rate for the use of borrowed money when he or she uses margin or other debt strategies to fund or secure an investment. Interest rate is calculated by dividing interest paid by the principal.

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