What is Interest: Definition and 296 Discussions

Interest, in finance and economics, is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distinct from a fee which the borrower may pay the lender or some third party. It is also distinct from dividend which is paid by a company to its shareholders (owners) from its profit or reserve, but not at a particular rate decided beforehand, rather on a pro rata basis as a share in the reward gained by risk taking entrepreneurs when the revenue earned exceeds the total costs.For example, a customer would usually pay interest to borrow from a bank, so they pay the bank an amount which is more than the amount they borrowed; or a customer may earn interest on their savings, and so they may withdraw more than they originally deposited. In the case of savings, the customer is the lender, and the bank plays the role of the borrower.
Interest differs from profit, in that interest is received by a lender, whereas profit is received by the owner of an asset, investment or enterprise. (Interest may be part or the whole of the profit on an investment, but the two concepts are distinct from each other from an accounting perspective.)
The rate of interest is equal to the interest amount paid or received over a particular period divided by the principal sum borrowed or lent (usually expressed as a percentage).
Compound interest means that interest is earned on prior interest in addition to the principal. Due to compounding, the total amount of debt grows exponentially, and its mathematical study led to the discovery of the number e. In practice, interest is most often calculated on a daily, monthly, or yearly basis, and its impact is influenced greatly by its compounding rate.

View More On Wikipedia.org
Recent contents Top users
  1. B

    Interest calculated daily compounded monthly

    Does anyone know how I can work out a formula to calculate how long it will take to pay a loan back to zero if the interest is on a loan is calculated daily but compounded at the end of the month. To add another level of complexity, assume you are making fortnightly repayments. P (Principal)...
  2. P

    What is a simplified expression for e^2.8 - e^2?

    Problem: What is the final difference in account values if $100,000 is invested in a) a project with returns of 7% / yr or b) one with returns of 5% / yr. Let the period of investment be 40 years. This problem is quite simple in theory, and I know the answer should be 100,000(1.07^40 -...
  3. P

    Would these work? this is just academic interest.

    I want to know/see how possible these things could be: -An electron shield -An aircraft(military) propelled by nuclear fusion/nuclear fuel. -Using pure electrons as a weapon.
  4. N

    Continuously Compounded Interest and Diving.

    The intensity L(x) of ligh X feet beneath the surface of the ocean satisfies the differential equation: dL/dx = -kL As a diver, you know from experience that diving to 18 ft in the Caribbean Sea cuts the intensity in half. You cannot work without artificial light when the intensity falls...
  5. W

    Interest based investment strategy

    Okay, I'm wondering if an investment that averages x% over the term of an investent and an investment with a fixed return of x% over the term of an investment are equivalent...I'm not really sure at all, and itas advised i can both explain and somehow graph this. Can anyone investigate my...
  6. K

    Compound Interest: Grow $1000 to $1500 in 5 Years?

    At what rate of interest compounded quarterly, to the nearest tenth of a percent, will an investment of $1000 grow to $1500 in 5 years? I set the problem up 1500=1000(1+x/4)^(4*5) I then divided by 1000 1.5 = (1+x/4)^20 But this is where I'm stuck.
  7. P

    So, i've always had an interest in law

    but i also have a huge interest in engineering. Right now, the plan is to major in either electrical or chemical engineering. Maybe even both, if the situation permits. if i major in either of those disciplines, and go to law school, what kind of job could i get? for example, one who...
  8. Astronuc

    News Conflict of Interest at World Bank

    Paul Wolfowitz left the Bush Administration to head up the World Bank as its president. Now he is in hot water! Turmoil Grows for Wolfowitz at World Bank http://www.nytimes.com/2007/04/13/world/13wolfowitz.html What was this guy thinking? Is this just bad judgement?
  9. marcus

    Public interest in Smolin's book

    Informed public interest in scientific research is part of what keeps the enterprise healthy, and merits our attention. As an index of public interest in Smolin's book "The Trouble with Physics...and What Comes Next" I have been tracking its Amazon sales rank, and, so as to have a reference...
  10. T

    Please criticize my REU statement of interest

    phew... I've been looking over the REU applications and working on the statement of interest. Being from a non-english speaking country, I'm nervous about writing a statement for something as important as the REU. I don't have any previous research experience, and am an undergraduate freshmen...
  11. E

    How Can I Write an Effective REU Statement of Interest in Mathematics?

    i'm applying to some math reus for summer and have to write statements of interest. i searched google for some tips on writing them but have only found very general things; can anyone give me some pointers on what to say specifically for an reu statement of interest or refer me to a relevant...
  12. C

    Formulas for interest Interest

    Today I was watching my sister do her Financial homework and I tryed to do one of them problems it said something about haveing 5000 bucks at 9% interest for 6 years and you had to find how much you would have. And so I tryed to use the compound interest formula P=A(1+(r/n)^rt but we both got...
  13. M

    What's Your Peculiar World Knowledge Score?

    I signed up and made a test on that site Evo was linking to. It's kind of hard, but it's not supposed to be a measure of intelligence, just a measure of how well you know some peculiar but interesting facts. I hope you find them interesting. :smile...
  14. G

    Cigarretes are expensive(compound interest problem)

    I've been circling his problem for a little while and cannot find how to approach it. A typical smoker spends 55 dollars a month on cigarrettes. Suppose that the smokers invest at the end of the month that same amount in a savings account at 4.8% compounded monthly. How much money will be...
  15. H

    Savings account simple interest problem

    Sam has decided to invest savings of $5000. for 2 years, starting on January 1, of this year in the following portfolio: 20% ip a savings account (5% simple interest, calculated daily, paid monthly) 50% in a 2- yearGlC (6% compounded annually) 30% in al— year term deposit (&5%...
  16. W

    Interest in blackholes and whiteholes

    i like astrophysics so much! But have particular interest in black holes and white holes and the big bang! In astrophysics, a white hole is a postulated celestial body that spews out matter, in other words an anti-black hole, or the time reversal of a black hole. It can be a means of...
  17. S

    If the interest rate is 15.5%, how much interest will she pay per year?

    Carmel owes $2902.40 on her bankcard. (a) If the interest rate is 15.5%, how much interest will she pay per year? (b) Interest is calculated dail at 0.04246% and charged monthly. How much will Carmel pay for a 30day month? (c)If she pays $500 off her bankcard bill on 15th July, how much...
  18. P

    Is There a Formula for Compound Interest with Additional Payments?

    Hello, I wanted to know is there a formula for compound interest when making additional payments. i.e. I make payments of $500 ever year for 5 years and NOT just $2500 once for the 5 year term. The current way I am calculating the result is using Compound Interest of initial payment for one...
  19. S

    Understanding Compound Interest: Solving Problems and Maximizing Profits

    I'm having some trouble with this problem what i did was (15500 + 1000t)*e^0.05t > 1000 so basically, when the money you are making is greater than how much you would make by keeping the cards i know the first t = when you sell it, but what is the second t? that should be the amount of time...
  20. G

    Calculate Interest & Payments - John's $4000 Lump Sum Investment

    John brought a stamp for his collection. He agreed to pay a lump sum of $4000 after 5 years. Until then, he pays 6% simple interest semiannually on the $4000. a) Find the amount of each semiannual interest payment. b) John sets up a sinking fund so that enought money will be present to pay off...
  21. I

    Finding the Optimal Rate for Equal Interest Earnings on Savings Accounts

    I have become completely bewildered by the following problem: Suppose you are a bank manager determining rates on savings accounts. If the account with interest compounded annually offers 5% interest, what rate should be offered on an account with interest compounded daily in order for the...
  22. I

    What's your (physics) research area of interest ?

    So, basically, what area of research are you interested in ? I haven't seen this topic before so sorry if I missed it. I think it would be interesting to see what most people like. I would say (at this moment at least :) optics and condensed matter. I tried to cover all possible areas I...
  23. L

    Interest rate, Differential Eq problem.

    I encounter with one of the textbook problem that I don't know how to approach. Here's the queston: A home buyer can afford to spend no more than $800/month on mortage payments. Suppose that the interest rate is 9% and that the term of the mortgage is 20 years. Assume that interest is...
  24. Y

    Interest rate comparison trouble

    hey guys, this is my first post. however! i have been lurking over this forum for quite sometime and i have have learned a lot of things from this forum, and it has been very helpful! i came across this question that is giving me a heartburn and i have scanned it below: how do you go...
  25. M

    Interest rate calculation help

    i am having problems figuring out how to find the answer to this problem: nancy wants to invest $4000 in saving certificates that bear an interest rate of 9.75% per yr, compound semiannually. how long a time period should she choose inorder to save an amt of $5000? the answer is...
  26. C

    My Interest in Physics and Mathematics

    Hi Folks May be a'm buggingu ppl with these time taking questions .. But i am not in state to go ahead with my interests I am interested in understanding different aspects of physics and mathematics related to same . Can anyone of u guide me as where to start ?. This is the biggest...
  27. Y

    Interest on principal over 5 years

    A retired hockey star wants to set up a scholarship fund to assist an underprivileged child who would like to go to a post-secondary institution. He wants to ensure that the student will have $6000 per year for five years. How much should he give to the institution, now, to ensure that this can...
  28. K

    Get to Know Your Fellow Forum Members: A Personal Questionnaire

    Well, as you can see, i am new to this forum from obvious indicators. I know very little about you, or the people that made up this forum. if i know anything, it is that the majority of you are probably white and from english specking countries. The fact that you are here means that you are some...
  29. B

    Have a BS in Physics but no interest in Physics

    I've noticed this with some of the other students in my class. We started out liking physics and so majored in physics, but now, graduating, have no real interest in physics. One of them has decided to become an actuary, another is going to teach English to kids in China, another is going to...
  30. A

    How Do You Calculate the Nominal Interest Rate Compounded Differently?

    :rolleyes: how do u do this ? Find the nominal interest rate that is equivalent to 18%/a compounded quarterly, if interest is paid monthly? WOh confusing What do u do?
  31. N

    FINANCIAL MATH: Question on Compounding Interest Semi-annually

    HELP! i know this is an easy question to solve but i need some help. THANKS for any help in advance! QUESTION: Determine, to the nearest half year, how long it will take $100 to amount to $500 at 6 1/2% compounded semi-annually. Using the formula A=P(1 + i)*to the power of*n where A is...
  32. A

    How can you maintain interest in math?

    Up until yesterday, I had thought mathematics was the foundation of an objective reality that exists outside our mind. I saw mathematics as embodying perfection. But, yesterday I came upon Goedel's incompleteness theorem, and the conclusions that can be derived from it. I feel as if I have lost...
  33. C

    Interest rate homework problem

    Hello all For discrete compunding, we have after n years (1+r)^n where r is the interest rate. IF we receive m interest payments at a rate of \frac {r}{m} then our discrete compounding equation becomes (1+ \frac{r}{m})^m = e^{m\log(1+(\frac{r}{m}))} \doteq e^r After time t we will have...
  34. E

    Ank pays 5% simple interest on money deposited

    I don't know where to begin with this question... could some give me a few pointers? I'd appreciate it. Bank pays 5% simple interest on money deposited, the credit union pays 4% with an added bonus of 25$ if the money stays in the account for a year: 1) if x represents the amt of $...
  35. S

    Calculate Interest Rate & Earnings: $150 -> $275 in 8yrs

    1. Determine the interest rate for a principal of $150 to amount to $275 in 8 years with interest compounded semi-annually. 2. Suppose you deposit $1000 in an investment account for one year at 6%. How much more money will you receice if the investment is: compounded semi-annually instead...
  36. A

    How Do You Calculate the Principal from Simple Interest?

    Question: A Certain sum of money amounts Rs. 600 in 2 years and to Rs. 650 in 3 years at Simple Interest. Find the Sum ?
  37. C

    News Australia's Election: "Man of Steel" and Interest Rates

    We are about to have an election here in Australia sometime shortly, in October, and the current Prime Minister, the incumbent John Howard (a.k.a Man of Steel), has adopted the slogan 'Keeping interest rates low'. Are high interest rates a wholly bad thing, or are there upsides to having high...
  38. T

    What is Usury and How Does it Affect Our Economy and Morality?

    Could someone explain to me what is the deal with the usury or interest on loans stuff?Some people claim that it is immoral to claim usury(interests)on loans, while others have no problem with that. If we had no usury in our day to day banking in what way would our lives and economy be...
  39. E

    Discover Topology Interest - Helpful Sites & Resources

    Hi, I am not sure if this would be the right place to post this but i know that it is a mathematical concept. I have read a bit about topology in the latest scientific american, and it really intrigued me. I am fascinated by this idea. Therefore i ask if you would kindly point me in the...
  40. C

    I lack interest in Chemistry Help

    I am an aspiring Physicist and I'm really interested in particle physics and Quantum Mechanics. I have been in college for 3 semesters now and have had no clue what I've wanted to do until I finished Kip Thorne's "Black Holes and Time Warps" and found out so many amazing things about reality...
  41. C

    Question: What is the significance of the 0 in the formula for simple interest?

    In Mathworld, they define Simple Interest as: a(t) = a(0)(1 + rt) where a(t) is the sum of principal and interest at time t for a constant interest rate r. I just want to know why that 0 is in there. Anything divided by 0 will be 0, thus a(t) = 0?
  42. M

    News Does self interest negate the positive effects of a country's actions?

    Does self interest negate the positive effects of a country's actions? The USA is constantly claimed to be selfish, despite the result of 'selfish' acts being HIGHLY positive for others (The marshall plan is a great example). Currently, it could be argued that we would like to develop oil...
  43. I

    Annuities: Determining the Interest Rate

    Annuities: Determining the Interest Rate (help needed!) David has $2000 to invest in an annuity. What interest rate must be obtain in order to receive payments of $500 at the end of each year for the next 5 years?
  44. M

    Calculating Interest with Compounding: Problem 9c

    Problem 9c. Suppose you invest $1.00 at 6% annual interest. Calcualte the amount that is compounded continuosly. This is what I have done: A=Pe^rt =1.00e^(0.06)(1) Is this right so far? Problem 11b. A population of ladybugs rapidly multiplies so that population t days form...
  45. H

    Towards a Science of Consciousness Conference 2004: interest, questions?

    As some of you may know already, I am going to attend the Towards a Science of Consciousness 2004 conference this year from April 7-11 in Tuscon, Arizona. (More information http://consciousness.arizona.edu/conference/tucson2004/index.php .) I was already planning on posting a documentation...
  46. M

    Are all human actions motivated by self interest?

    Is every human action motivated by self-interest? Even when we help a complete stranger do we do it becuase it makes us feel good (and hence we are doing it out of self interest)? What do you think?
Back
Top