Interpretation of a Rate of Return Value
From the perspective of someone who has borrowed money, the interest rate is applied to the
unpaid balance so that the total loan amount and interest are paid in full exactly with the last loan
payment. From the perspective of a lender of money, there is an unrecovered balance at each time
period. The interest rate is the return on this unrecovered balance so that the total amount lent and
the interest are recovered exactly with the last receipt. Rate of return describes both of these
perspectives.