If one asked somebody whether he would rather have Rs. 10,000 today or Rs. 10,000 one year from today, the immediate reply from any sane person will surely be 'Today". If rephrased as Rs. 11,000 one year from today, a few may say "one year from today", but not all. If further rephrased as Rs. 11,500 one year from today, a few further more may respond with "one year from today".
Continuing like this, if almost every sane person in the present company and environment responds with "one year from today" for an offer Rs. 13,600 one year from today, it is to be inferred that 36% (how 13,600 is in excess of 10,000, as a percentage of 10,000) is the so called attractive rate of return for most people under this set of circumstances. This rate of return is also defined as the going "interest" that money can earn under the present circumstances. It is also the acceptable level of cost of money, or the opportunity cost of money under currently prevailing circumstances. It is also the expectation of return. It is also the time value of money (for a time period of one year). Operationally, it is the return derived from capital productively invested. Interest rate is the ratio between the amount of interest chargeable or payable at the end of a specific time period, usually one year, and the money borrowed at the beginning of the period. In general, the interest rate is "per annum" (per year), unless otherwise stated.
Extending the concept further, though one may loosely feel that 24% interest payable annually is equal to 2% interest payable monthly, or 6% interest payable quarterly or 12% interest payable half-yearly, yet there are differences between each of these. A more professional definition involves "nominal interest" and "effective interest". This can be explained beret after indicating certain formula for computations involving interest payments.
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