Bonds

Interest

Just as someone who leases their home demands rent in exchange, the lender of money also demands something in exchange. That something is called interest. Loaning funds amounts to “leasing” money to someone in exchange for user’s fees.

For example, if we assume that Bank A loans Mark $20,000 for one year at 20% interest. At the end of the year, Mark will repay $20,000 in principal to the bank, plus $4,000 in interest. If the loan is provided for two years, then the amount of interest will double: Mark will pay the bank $4,000 in interest at the end of the first year. At the end of the second year, he will again pay the bank $4,000 in interest, plus the $20,000 principal.

Interest535Interest