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LSDefine
Simple English definitions for legal terms
nominal rate
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A quick definition of nominal rate:
Nominal rate: This is another term for interest rate. It refers to the percentage of money that a lender charges a borrower for borrowing money. For example, if you borrow $100 and the nominal interest rate is 5%, you will have to pay back $105. It is important to note that the nominal rate does not take into account inflation or other factors that may affect the real cost of borrowing.
A more thorough explanation:
Definition: The nominal rate is another term for the interest rate. It is the rate at which interest is charged on a loan or investment, without taking into account any other factors such as inflation or compounding.
Example: If you take out a loan with a nominal rate of 5%, you will be charged 5% interest on the amount you borrow. However, if inflation is 2%, the real interest rate (the rate adjusted for inflation) is only 3%. This means that the actual cost of borrowing is lower than the nominal rate suggests.
Explanation: The example illustrates how the nominal rate is the rate at which interest is charged on a loan or investment, without taking into account any other factors. In this case, inflation is a factor that affects the real cost of borrowing, but it is not included in the nominal rate. The example shows that the nominal rate can be misleading if it does not take into account other factors that affect the cost of borrowing or the return on investment.