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:
“But what would interest you about the brook,
It’s always cold in summer, warm in winter.”
—Robert Frost (1874–1963)
“If you could choose your parents,... we would rather have a mother who felt a sense of guilt—at any rate who felt responsible, and felt that if things went wrong it was probably her fault—we’d rather have that than a mother who immediately turned to an outside thing to explain everything, and said it was due to the thunderstorm last night or some quite outside phenomenon and didn’t take responsibility for anything.”
—D.W. Winnicott (20th century)