Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds.
When money is borrowed, interest is typically paid to the lender as a percentage of the principal, the amount owed to the lender. The percentage of the principal that is paid as a fee over a certain period of time (typically one month or year) is called the interest rate. A bank deposit will earn interest because the bank is paying for the use of the deposited funds. Assets that are sometimes lent with interest include money, shares, consumer goods through hire purchase, major assets such as aircraft, and even entire factories in finance lease arrangements. The interest is calculated upon the value of the assets in the same manner as upon money.
Interest is compensation to the lender, for a) risk of principal loss, called credit risk; and b) forgoing other investments that could have been made with the loaned asset. These forgone investments are known as the opportunity cost. Instead of the lender using the assets directly, they are advanced to the borrower. The borrower then enjoys the benefit of using the assets ahead of the effort required to pay for them, while the lender enjoys the benefit of the fee paid by the borrower for the privilege. In economics, interest is considered the price of credit.
Interest is often compounded, which means that interest is earned on prior interest in addition to the principal. The total amount of debt grows exponentially, most notably when compounded at infinitesimally small intervals, and its mathematical study led to the discovery of the number e. However, in practice, interest is most often calculated on a daily, monthly, or yearly basis, and its impact is influenced greatly by its compounding rate.
Other articles related to "interest":
... The ASX interest rate market is the set of corporate bonds, floating rate notes, and bond-like preference shares listed on the exchange ... shares, but the ASX provides information such as their maturity, effective interest rate, etc ...
... In addition to sports, astronomy is also Dr ... Chung's interest ...
... behind the Fisher equation is the relationship between nominal and real interest rates, through inflation, and the percentage change in the price level ... So assume someone buys a $1 bond in period t while the interest rate is ... from the bond is therefore From here the nominal interest rate can be solved for ...
... A short-term interest rate (STIR) future is a futures contract that derives its value from the interest rate at maturation ... Common short-term interest rate futures are Eurodollar, Euribor, Euroyen, Short Sterling and Euroswiss, which are calculated on LIBOR at settlement, with the exception of Euribor which is based ... This value is calculated as 100 minus the interest rate ...
... loan with regular monthly payments is augmented by the monthly interest charge and decreased by the payment so , where i = loan rate/100 = annual rate in decimal form (e.g ... found in spreadsheet programs can be used to calculate the monthly payment of a loan An interest-only payment on the current balance would be ... The total interest, IT, paid on the loan is ...
Famous quotes containing the word interest:
“The slaves of power mind the cause they have to serve, because their own interest is concerned; but the friends of liberty always sacrifice their cause, which is only the cause of humanity, to their own spleen, vanity, and self-opinion.”
—William Hazlitt (17781830)
“I cannot assent to a measure which stains our credit. We must keep that untainted. We are a debtor nation. Low rates of interest on the vast indebtedness we must carry for many years, is the important end to be kept in view. Expediency and justice both demand honest coinage.”
—Rutherford Birchard Hayes (18221893)
“I should consider it a greater success to interest one wise and earnest soul, than a million unwise and frivolous.”
—Henry David Thoreau (18171862)