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.

Read more about InterestHistory of Interest, Market Interest Rates, Interest in Mathematics, Formulae

Other articles related to "interest":

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Interest - Formulae
... The balance of a loan with regular monthly payments is augmented by the monthly interest charge and decreased by the payment so , where i = loan rate/100 = annual ... 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 ...
Fisher Equation - Derivation
... behind the Fisher equation is the relationship between nominal and real interest rates, through inflation, and the percentage change in the price level between two time periods ... someone buys a $1 bond in period t while the interest rate is ... value of the proceeds from the bond is therefore From here the nominal interest rate can be solved for ...

Famous quotes containing the word interest:

    You will think me very pedantic, gentlemen, but holiday though it may be, I have not the smallest interest in any holiday, except as it celebrates real and not pretended joys.
    Ralph Waldo Emerson (1803–1882)

    The prairies were dust. Day after day, summer after summer, the scorching winds blew the dust and the sun was brassy in a yellow sky. Crop after crop failed. Again and again the barren land must be mortgaged for taxes and food and next year’s seed. The agony of hope ended when there was not harvest and no more credit, no money to pay interest and taxes; the banker took the land. Then the bank failed.
    Rose Wilder Lane (1886–1968)

    A mob cannot be a permanency: everybody’s interest requires that it should not exist, and only justice satisfies all.
    Ralph Waldo Emerson (1803–1882)