APR and APY

APR and APY are key terms in the crypto industry. They measure the potential return on investment for various crypto assets.

APR, or Annual Percentage Rate, represents the ordinary interest rate applied to the amount of an annual loan or an investment. This number is expressed as a percentage and considers any fees or additional costs associated with the loan or investment without considering the compounding.

To calculate the final amount based on APR, you need this formula: APR = [P × (1 + R×T)], where P represents the initial investment/loan, R is the interest rate used, and T is the time.

APY stands for Annual Percentage Yield and measures the total return on an investment or loan over a year, taking into account the compound interest, also known as compounding.

APY needs to consider the number of periods in which the amount is adjusted based on the interest rate. API = [P (1 + R/N)N], where N represents the number of compounding periods and the number of times the investment amount is recalculated based on the quoted nominal interest rate.

Compound interest is the only difference between them. Always keep in mind that APR rates are better for borrowing money, while APY is more beneficial for investing.

APR and APY are important metrics for investors and borrowers in the crypto industry, providing a way to compare the potential return on different investment options and make informed decisions about which assets to invest in.