Interest – Explanation, Calculation, Types, Solved Example, and FAQs

# Interest – Explanation, Calculation, Types, Solved Example, and FAQs

## What is Interest?

Interest is the fee paid for the use of borrowed money. It is calculated as a percentage of the amount borrowed, and is paid periodically, typically monthly.

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## What is an Interest?

An interest is a payment made by a borrower to a lender for the use of money. The interest is calculated as a percentage of the amount of money borrowed. It is usually paid on a regular basis, such as monthly.

## How Does Interest Work?

In economics, interest is the price paid for the use of borrowed money. Interest is calculated as a percentage of the total amount borrowed. It is charged both on short-term loans, such as credit cards, and on long-term loans, such as mortgages.

The interest rate that a borrower pays is determined by a number of factors, including the amount of the loan, the length of the loan, and the creditworthiness of the borrower. Lenders also charge interest to cover the risk of not being repaid.

Borrowers use interest to compensate lenders for the time value of money. Money that is borrowed today can be used to generate income in the future. By charging interest, lenders are compensated for the use of their money today.

Interest also helps to allocate resources in the economy. When people save money, they are lending it to borrowers. The interest that is paid on those loans helps to finance the activities of borrowers, such as businesses and consumers. This helps to ensure that the money that is saved is put to use in the most efficient way possible.

## How to Calculate Interest?

The calculation of interest is done by multiplying the principal balance of the loan by the interest rate. The result is then divided by the number of days in the year.

## What is Simple Interest?

Simple interest is a type of interest that is calculated on the initial principal amount only. It doesn’t compound, which means the interest is not added to the principal amount and then accrued over time.

## Compound Interest

The simple interest formula is I = Prt, where I stands for interest, P stands for the principal, r stands for the annual interest rate, and t stands for the number of years the money is invested.

The compound interest formula is I = (P)(1 + r)t, where I stands for interest, P stands for the principal, r stands for the annual interest rate, and t stands for the number of years the money is invested.

## Compound Interest Formula

The compound interest formula is A = P(1 + r)n, where A is the amount of money in the account, P is the principal, r is the annual interest rate, and n is the number of years the money is left in the account.

## Solved Example

Question

The average of five numbers is 30. What is the sum of the five numbers?

175

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