ABSTRACT
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, and its mathematical study led to the discovery of the number.
TABLE OF CONTENTS
CERTIFICATION PAGE
DEDICATION
ACKNOWLEDGEMENT
ABSTRACT
TABLE OF CONTENTS
CHAPTER ONE
1.0INTRODUCTION
1.1STATEMENT OF PROBLEM
1.2 PURPOSE OF THE STUDY
1.3IMPORTANCE OF THE STUDY
1.4DEFINITION OF TERMS
1.5ASSUMPTION OF THE STUDY
CHAPTER TWO
2.0LITERATURE REVIEW
HISTORY OF INTEREST
CHAPTER THREE
3.0TYPES OF SIMPLE INTEREST
3.1COMPOSITION OF INTEREST RATES
3.2CUMULATIVE INTEREST OR RETURN
OTHER CONVENTIONS AND USES
CHAPTER FOUR
4.0COMPOUND INTEREST AND MARKET RATES IN RETAIL BANKS
4.1OPPORTUNITY COST
4.2INFLATION
4.3DEFAULT
DEFAULT INTEREST
DEFERRED CONSUMPTION
LENGTH OF TIME
GOVERNMENT INTERVENTION
OPEN MARKET OPERATIONS IN THE UNITED STATES
INTEREST RATES AND CREDIT RISK
CHAPTER FIVE
5.0CONCLUSION
5.1 LIMITATION OF THE STUDY
5.2 SUGGESTION FOR FURTHER RESEARCH
REFERENCES