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In finance, interest has three general definitions. Finance studies and addresses the ways in which individuals, businesses and organizations raise, allocate and use monetary resources over time, taking into account the risks entailed in their projects. ...
- Interest is a surcharge on the repayment of debt (borrowed money).
- Interest is the return derived from an investment.
- Interest is the right to one's claim in a corporation, such as that of an owner or creditor.
In economics, interest is the return to capital achieved over time or as the result of an event. Debt is that which is owed. ...
An example of Money. ...
In finance, the return on investment (ROI) or just return is a calculation used to determine whether a proposed investment is wise, and how well it will repay the investor. ...
Classical economics is a school of economic thought whose major developers include William Petty, Adam Smith, David Ricardo, Thomas Malthus, and John Stuart Mill, and Johann Heinrich von Thünen. ...
In economics and political economy returns are the distributions or payments awarded to the various suppliers of the factors of production. ...
Capital has a number of related meanings in economics, finance and accounting. ...
In population dynamics the rate of population growth (the interest rate) is sometimes referred to as the Malthusian parameter. Population dynamics is the study of marginal and long-term changes in the numbers, individual weights and age composition of individuals in one or several populations, and biological and environmental processes influencing those changes. ...
Sir Ronald Fisher Sir Ronald Aylmer Fisher, FRS (17 February 1890 – 29 July 1962) was a British eugenicist, evolutionary biologist, geneticist and statistician. ...
This article covers the "financial" use of the term.
In common use the term "interest" is seen as rent paid for the use of money. As with any rental, the market price (or rate) is subject to change to reflect market conditions. The fraction by which the balances grow is called the interest rate. The original balance is called the principal. Interest rates are very closely watched indicators of a financial market, and have a dramatic effect on finance and economics. A physical marketplace in Portugal enables buyers and sellers of produce to do business with each other. ...
An interest rate is the price a borrower pays for the use of money he does not own, and the return a lender receives for deferring his consumption, by lending to the borrower. ...
Financial market is a broad market where buyers and sellers to exchange various types of financial securities or products that comprise financial securities. ...
The fact that lenders demand interest for loans can be attributed to the following reasons:
- Time value of money or time preference
- (TVM: Having money now is more valuable than having it at some future time because interest is earned)
- (TP: Interest is the value borrowers place on having money now)
- Opportunity cost
- (OC: The cost in terms of options no longer available once one particular option is chosen)
The time value of money (TVM) or the discounted present value is one of the basic concepts of finance, developed by Leonardo Fibonacci in 1202. ...
Time preference is the economists assumption that a consumer will place a premium on enjoyment nearer in time over more remote enjoyment. ...
Opportunity cost is a term used in economics to mean the cost of something in terms of an opportunity forgone (and the benefits that could be received from that opportunity), or the most valuable forgone alternative. ...
History Historical documents dating back to the Sumerian civilization, circa 3000 B.C., reveal that the ancient world had developed a formalized system of credit based on two major commodities, grain and silver. Before there were coins, metal loans were based on weight. Archaeologists have uncovered pieces of metal that were used in trade in Troy, Minoan and Mycenaean civilizations, Babylonia, Assyria, Egypt and Persia. Before money loans came into existence, loans of grain and silver served to facilitate trade. Silver was used in town economies, while grain was used in the country. Sumer (or Shumer, Sumeria, Shinar, native ki-en-gir) formed the southern part of Mesopotamia from the time of settlement by the Sumerians until the time of Babylonia. ...
Walls of the excavated city of Troy Troy ( Ancient Greek ΤÏοία Troia or ΤÏοάς Troas also Ίλιον; Latin: Troia, Ilium) is a legendary city, scene of the Trojan War, described in the Trojan War cycle, especially in the Iliad, one of the two Ancient Greek epic poems attributed to Homer. ...
Map of Minoan Crete The Minoans were a pre-Hellenic Bronze Age civilization in Crete in the Aegean Sea, prior to Helladic or Mycenaean culture (i. ...
Mycenaean can have the following meanings: coming from or belonging to the ancient town of Mycenae in Pelloponese in Greece; belonging to the culture of the Mycenaean period of the eastern Mediterranean in the late Bronze Age; the Mycenaean language, an ancient form of Greek, known from inscriptions in Linear...
Babylonia, named for the city of Babylon, was an ancient state in Mesopotamia (in modern Iraq), combining the territories of Sumer and Akkad. ...
Relief from Assyrian capital of Dur Sharrukin, showing transport of Lebanese cedar (8th c. ...
The term Persian Empire refers to a series of historical empires that ruled over the Iranian plateau. ...
General Name, Symbol, Number silver, Ag, 47 Chemical series transition metals Group, Period, Block 11, 5, d Appearance lustrous white metal Atomic mass 107. ...
Cereal crops are mostly grasses cultivated for their edible seeds (actually a fruit called a caryopsis). ...
The collection of interest was restricted by Jewish, Christian and other religions under laws of usury. This is still the case with Islam, which results in a special type of Islamic banking. Silvio Gesell researched the destabilizing effect of interest (an asset will increase beyond any limit over time) in his Freiwirtschaft theory, which includes negative interest rates. Usury (pronounced // or //, from the Latin usuria, demanding in return for a loan a greater amount than was borrowed) was defined originally as charging a fee for the use of money. ...
Islam (Arabic: ; ( (help· info)), submission (to the will of God)) is a monotheistic faith, one of the Abrahamic religions, and the worlds second-largest religion. ...
To meet Wikipedias quality standards, this article or section may require cleanup. ...
Jean Silvio Gesell (March 17, 1862–March 11, 1930) was a merchant and finance theoretician. ...
Freiwirtschaft (German for free economy) is an economic idea founded by Silvio Gesell in 1916. ...
Types of compounding The method by which interest accrues (accumulates) generally falls in one of the following two categories:
Simple interest Simple interest is interest that accrues linearly. In other words, it grows by a certain fraction of the principal per time period. Calculation of accrued interest of most debt uses simple interest. Once an interest payment is made, the lender can reinvest it elsewhere. In case he reinvests it in the original investment, interest will start accruing on this interest. In this case, he can calculate the growth of his investment using the compound interest method. The word linear comes from the Latin word linearis, which means created by lines. ...
In finance, accrued interest is the interest that has accumulated since the principal investment, or since the previous interest payment if there has been one already. ...
- A(t) = Amount after t years
- A0= Principal (start amount)
- r = Interest rate
- t = Time in years
(note - the interest rate must be entered as a fraction, e.g., .06 rather than 6%)
Compound interest Compound interest, previously called anatocism, is interest which is regularly added to the debt (compounded). Interest is then calculated not only over the principal, but also over the interest that has been added to the debt before--in other words, it is calculated over the total amount owed. With compound interest, the frequency of compounding influences the total amount of interest paid over the life of the loan. The amount function for compound interest is an exponential function in terms of time.
- n = Number of compounding periods per year (note that the total number of compounding periods is
 ) As n increases the rate approaches an upper limit of er. This rate is called continuous compounding.
Many banks advertise an annual percentage yield (APY) which is the return on the principal over an entire year. For example, a 5% rate compounded monthly would have an approximate APY of 5.12%.
If the American Indian tribe that accepted goods worth 60 guilders for the sale of Manhattan in 1626 had invested the money in a Dutch bank at 6 1/2 % interest, compounded annually, their investment would today (2005) be worth over € 700 billion (around US$ 820 billion), more than the assessed value of the real estate in all five boroughs of New York City. Guilder is the English name for the Dutch Gulden. ...
The Borough of Manhattan, highlighted in yellow, lies between the East River and the Hudson River. ...
Events September 30 - Nurhaci, chieftain of the Jurchens and founder of the Qing Dynasty dies and is succeeded by his son Hong Taiji. ...
A bank is an institution that provides financial service, particularly taking deposits and extending credit. ...
Nickname: The Big Apple Official website: City of New York Government Counties (Boroughs) Bronx (The Bronx) New York (Manhattan) Queens (Queens) Kings (Brooklyn) Richmond (Staten Island) Mayor Michael Bloomberg (R) Geographical characteristics Area Total 468. ...
Compound interest was once regarded as the worst kind of usury, and was severely condemned by Roman law, as well as the common laws of many other countries. [1] Usury (pronounced // or //, from the Latin usuria, demanding in return for a loan a greater amount than was borrowed) was defined originally as charging a fee for the use of money. ...
Roman Law is the legal system of ancient Rome. ...
This article concerns the common-law legal system, as contrasted with the civil law legal system; for other meanings of the term, within the field of law, see common law (disambiguation). ...
Types of interest rate Interest rates can be divided into two types: It is common for firms to swap between the two types of interest rate. These contractual agreements are derivatives called interest rate swaps. GAAP provides guidelines for some of these kinds of changes. In finance, a bond is a debt security, in which the issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon). ...
In finance, a Fixed rate bond is a security issued by a government or a business corporation that pays a fixed amount of interest (coupon rate) on the face value (principal/par value) of the bond periodically (often every six months or annually) to the owner until a date certain...
A reference rate is any publicly available quoted number or value that is used by the parties to a financial contract. ...
LIBOR stands for the London Interbank Offered Rate and is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale (or interbank) money market. ...
In economics, a Consumer Price Index (CPI, also retail price index) is a statistical measure of a weighted average of prices of a specified set of goods and services purchased by wage earners in urban areas. ...
Floating rate notes (FRNs) are bonds that have a variable coupon, equal to a money market reference rate, like LIBOR or federal funds rate, plus a spread. ...
A financial ratio is a ratio of two numbers of reported levels or flows of a company. ...
A credit rating agency is a company that rates the ability of a person or company to pay back a loan. ...
A derivative is a financial contract whose payoffs over time are derived from the performance of assets (such as commodities, shares or bonds), interest rates, exchange rates, or indices (such as a stock market index, consumer price index (CPI) or an index of weather conditions). ...
In the field of derivatives, a popular form of swap is the interest rate swap, in which one party exchanges a stream of interest for another stream. ...
GAAP is an acronym for Generally Accepted Accounting Principles. ...
Analysis of interest-rate risks Interest involves the future, which is uncertain. Some interest bearing investments are riskier than others are. The greater the risk of the security, the more interest the investors will expect to receive. A depiction of the future of mankind as seen in the motion picture Blade Runner. ...
Risk is the potential harm that may arise from some present process or from some future event. ...
The fundamental determinants of interest rate of a debt instrument are these risks. The following is a list of risks commonly associated with interest rates:
- Nonsystematic risks
- Credit risk – the risk of default on the loan or of bankruptcy
- Maturity/Term risk – the risk involved in a long-term investment
- Liquidity risk – the need of compensating the illiquidity of the debt
- Systematic risks
Credit as a financial term, used in such terms as credit card, refers to the granting of a loan and the creation of debt. ...
Notice of closure stuck on the door of a computer store the day after its parent company, Granville Technology Group Ltd, declared bankruptcy (strictly, administration - see text) in the UK. Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their creditors. ...
A systemic risk is a risk faced by a system, in contrast to a specific risk or unique risk. ...
Credit risk The credit risk is the most commonly associated risk. It determines the different amount individuals or firms pay based on their credit-worthiness. Different parties will be offered different rates on debt obligations (such as loans). The measure of credit worthiness of an individual is called a credit rating or credit score. Other entities (such as governments and companies) will acquire a bond rating if they are active in bond markets. Credit risk is the risk of loss due to a counterparty defaulting on a contract, or more generally the risk of loss due to some credit event. Traditionally this applied to bonds where debt holders were concerned that the counterparty to whom theyve made a loan might default on...
The examples and perspective in this article may not represent a worldwide view. ...
In finance, a bond is a debt security, in which the issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon). ...
The credit spread between an instrument and its risk-free equivalent is called the risk premium. Credit spread is the difference in yield between different securities due to different credit quality. ...
A risk premium is the minimum difference between the expected value of an uncertain bet that a person is willing to take and the certain value that he is indifferent to. ...
Maturity/term risk - See term structure of interest rates
This article is about yield curves as used in finance. ...
Liquidity risk Liquidity risk is the risk that the lender might not be able to liquidate the debt on short notice. The difference in interest rate due to liquidity risk is called liquidity spread. Instruments such as bonds have an active secondary market. Other instruments such as savings deposits are easily transferable to cash. On the other hand 30-year US Government savings bond is non-transferable. It can only be redeemed at half price before maturity. The savings bond will obviously offer a higher return. Liquidity risk arises from situations in which a bank cannot sell an asset because nobody in the market wants to trade that asset. ...
The secondary market is the financial market for trading of securities that have already been issued in an initial private or public offering. ...
Savings deposits are accounts maintained by commercial banks, savings and loan associations, credit unions, and mutual savings banks that pay interest but can not be used directly as money (by, for example, writing a check). ...
Treasury Securities are bonds issued by the U.S. Treasury. ...
Another interesting phenomenon observed from liquidity spread is that on-the-run securities (primary market) have lower interest rates compare to the off-the-run securities (secondary market). This implies that there is a higher demand for on-the-run securities.
Inflation and exchange-rate risks Majority of the inflation and exchange rate risk come from loans to developing countries. Therefore, loans offered by banks in developed countries usually denominate the loan contract in stable currencies such as the US Dollar, Pound Sterling, or Euro. The United States dollar is the official currency of the United States. ...
UKP redirects here. ...
The euro (plural euro, symbol: €; banking code: EUR) is the official currency of the European Union and single currency for over 300 million Europeans in the following twelve European Union member states: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain; collectively also known as...
This has led to unfavorable consequences for the borrowers of developing countries because the economies of developing countries often have high inflation and an unstable exchange rate.
Mathematics of interest rates The amount functions for simple and compound interest are defined as the following:   A(t) = amount at time t A(0) = principal: amount at time 0 t = time in years r = interest rate n = number of compounding periods per year To use these functions, simply substitute the values into the appropriate variable and solve.
Since the principal A(0) is simply a coefficient, it is often dropped for simplicity. The accumulation function is the resulting function. Accumulation functions for simple and compound interest are listed below: The accumulation function a(t) is a function defined in terms of time t expressing the time value of money. ...
  Note: A(t) is the amount function and a(t) is the accumulation function.
Force of interest In mathematics, the accumulation function are often expressed in terms of e, the base of the natural logarithm. This facilitates the use of calculus methods in manipulation of interest formulas. This is called the force of interest. ex is the unique function f, such that for any real number x, ex = f(x) = f(x). ...
The natural logarithm is the logarithm to the base e, where e is equal to 2. ...
The force of interest is defined as the following:
  When the above formula is written in differential equation format, the force of interest is simply the coefficient of amount of change.  The force of interest for compound interest is a constant for a given r, and the accumulation function of compounding interest in terms of force of interest is a simple power of e:  
Continuous compounding For interest compounded a certain number of times, n, per year, such as monthly or quarterly, the formula is:  Continuous compounding can be thought as making the compounding period infinitely small; therefore achieved by taking the limit of n to infinity. One should consult definitions of the exponential function for the mathematical proof of this limit. In mathematics, the concept of a limit is used to describe the behavior of a function as its argument either gets close to some point, or as it becomes larger and larger; or the behavior of a sequences elements, as their index becomes larger and larger. ...
Infinity refers to several distinct concepts which arise in theology, philosophy, mathematics and everyday life. ...
In mathematics, the exponential function can be characterized in many ways. ...
  The amount function is simply 
References - ^ This article incorporates content from the 1728 Cyclopaedia, a publication in the public domain.
Cyclopaedia; or an Universal Dictionary of Arts and Sciences (folio, 2 vols. ...
The public domain comprises the body of all creative works and other knowledge—writing, artwork, music, science, inventions, and others—in which no person or organization has any proprietary interest. ...
See also Wikipedia does not have an article with this exact name. ...
Wiktionary logo Wiktionary is a Wikimedia Foundation project intended to be a free wiki dictionary (including thesaurus and lexicon) in almost every language. ...
Compound annual growth rate (CAGR) is one method of assessing the average growth of a value over time. ...
A credit rating agency is a company that rates the ability of a person or company to pay back a loan. ...
Credit card interest is the principal way in which card issuers generate revenue. ...
NOTE: this is not Fishers equation in differential equations The Fisher equation in financial mathematics and economics estimates the relationship between nominal and real interest rates under inflation. ...
A mortgage is a method of using property as security for the payment of a debt. ...
The risk-free interest rate is the interest rate that it is assumed can be obtained by investing in financial instruments with no risk. ...
This article is about yield curves as used in finance. ...
Usury (pronounced // or //, from the Latin usuria, demanding in return for a loan a greater amount than was borrowed) was defined originally as charging a fee for the use of money. ...
Finding related topics In mathematics, a quantity that grows exponentially (or geometrically) is one that grows at a rate proportional to its size. ...
In finance, the rule of 72, the rule of 70 and the rule of 69. ...
What follows is a list of over 250 Wikipedia articles on finance topics. ...
This is a list of topics which are relevant to Accountancy. ...
This is a list of articles on general management and strategic management topics. ...
Organizational studies - an overview Organizational development Management development Mentoring Coaching Job rotation Professional development Upward feedback Executive education Supervisory training leadership development leadership talent identification and management individual development planning 360 degree feedback succession planning Skills management performance improvement process improvement job enrichment Training & Development managing change and also change...
This is a list of over 200 articles on marketing topics. ...
This aims to be a complete list of the articles on economics. ...
Management information systems an overview E-business Intranet strategies Database management system Data warehousing Data mining Document warehousing Customer relationship management (CRM) Sales force management system Enterprise resource planning (ERP) Human Resource Management Systems (HRMS) Business performance management Project management software Integration management Middleware Groupware and collaborative systems RSA Computer...
This is a list of business law topics within the field of commercial law. ...
See business ethics, political economy and Philosophy of business for an overview. ...
This is an annotated list of important business theorists. ...
This is an alphabetical list of well-known economists. ...
Corporate leaders Joe Ackermann - Deutsche Bank William Maxwell Aitken, 1st Baron Beaverbrook- newspaper magnate Arthur Andersen - Arthur Andersen Kunitake Ando - Sony John Jacob Astor - Fur trading and real estate Percy Barnevik - Investor Bernard Baruch - Financier, Investor, Presidential advisor Andy Bechtolsheim - Sun Microsystems Silvio Berlusconi - Italian media, Prime Minister of Italy...
This is an incomplete list of companies. ...
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