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":
... In addition to sports, astronomy is also Dr ... Chung's interest ...
... 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 rate in decimal form (e.g ... 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 ...
... The ASX interest rate market is the set of corporate bonds, floating rate notes, and bond-like preference shares listed on the exchange ... way as ordinary shares, but the ASX provides information such as their maturity, effective interest rate, etc ...
... the intuition 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 ... So assume someone buys a $1 bond in period t while the interest rate is ... proceeds 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 ... This value is calculated as 100 minus the interest rate ...
Famous quotes containing the word interest:
“My neighbors tell me of their adventures with famous gentlemen and ladies, what notabilities they met at the dinner-table; but I am no more interested in such things than in the contents of the Daily Times. The interest and the conversation are about costume and manners chiefly; but a goose is a goose still, dress it as you will.”
—Henry David Thoreau (18171862)
“If property had simply pleasures, we could stand it; but its duties make it unbearable. In the interest of the rich we must get rid of it.”
—Oscar Wilde (18541900)
“There is a blessed necessity by which the interest of men is always driving them to the right; and, again, making all crime mean and ugly.”
—Ralph Waldo Emerson (18031882)