Interest Rate
The suppliers are people who save money. The demanders are people who borrow the money. The interest rate is the cost of borrowing or demanding loanable funds and is the amount of money paid for the use of a dollar for a year. The interest rate can also describe the rate of return from supplying or lending loanable funds. It is typically measured as an annual percentage rate. As an example, consider this: a firm that borrows $10,000 in funds for one year, at an annual interest rate of 10%, will have to pay the lender $11,000 at the end of the year. This amount includes the original $10,000 borrowed plus $1,000 in interest; in mathematical terms, this can be written as $10,000 × 1.10 = $11,000. To continue with this example, if the firm borrows $10,000 for two years at an annual interest rate of 10%, it will have to repay the lender $12,100 at the end of two years. Because the loan lasts for two years, the firm will not have to pay the lender until the end of the second year. The firm is charged compound interest during the second year.
Read more about this topic: Loanable Funds
Famous quotes containing the words interest and/or rate:
“For that’s what a woman, a mother wants—to teach her children to take an interest in life. She knows it’s safer for them to be interested in other people’s happiness than to believe in their own.”
—Marguerite Duras (b. 1914)
“At this very moment,... the most frightful horrors are taking place in every corner of the world. People are being crushed, slashed, disembowelled, mangled; their dead bodies rot and their eyes decay with the rest. Screams of pain and fear go pulsing through the air at the rate of eleven hundred feet per second. After travelling for three seconds they are perfectly inaudible. These are distressing facts; but do we enjoy life any the less because of them? Most certainly we do not.”
—Aldous Huxley (1894–1963)