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:
“Shall the railroads govern the country, or shall the people govern the railroads? Shall the interest of railroad kings be chiefly regarded, or shall the interest of the people be paramount?”
—Rutherford Birchard Hayes (1822–1893)
“I don’t know but a book in a man’s brain is better off than a book bound in calf—at any rate it is safer from criticism. And taking a book off the brain, is akin to the ticklish & dangerous business of taking an old painting off a panel—you have to scrape off the whole brain in order to get at it with due safety—& even then, the painting may not be worth the trouble.”
—Herman Melville (1819–1891)