Interest

I) The price of borrowing money

• A) Expressed in terms of %.

• B) Payback is always greater than the loan.

II) Interest Rates

• A) What influences interest Rates?– i) Longer time/higher

interest rate

– ii) Higher risk/higher interest rate

– iii) higher inflation/higher interest rate

– iv) higher taxes/higher interest rate

Different Rates• B) Prime Rate-Rate which

banks loan $ to best customers.

• C) Corporate Bond Rate- Rate on $ loaned to corporations.

• D) Federal Funds rate-Rate banks pay to borrow $ from each other in the short run.

• E) Discount Rate-rate banks pay to borrow $ from Federal Reserve.

III) Consumer Credit & Interest

• A) High because:– i) Longer Time– ii) Higher Risk– iii) Costly to loan

Consumer Credit Con’t

• B) Higher interest rate means higher monthly payment/Total payment

• C) Total payment far higher than the loan

• D) Greater with time.