This link is concerned with interest, interest rates and their effect on the value of money. Companies pay millions of rupees as interest each year for use of money which they borrowed. We earn profit on money which we have invested in saving accounts, certificates of deposit etc… Interest is a fee (rent), which is paid for the use of money. We pay interest on the loans drawn from banks. Similarly, bank pays us interest on money deposited in savings accounts, etc… The money which is invested or lent is called principal or Capital. Interest is paid usually in proportion to the principal over the period for which money is used. Interest rate specifies the rate at which interest accumulates. Interest rate normally expressed as a percentage of principal per period of time e.g. 18% per month. 5% per year etc and sum of principal of interest is called amount. Interest rate actually tells us that how much amount is increased for every Rs.100. Interest is further divided into two parts: Simple Interest & Compound Interest.
Suppose a person wants to start a business, obviously he needs money to run the business. If he has not enough money to run the business then he must borrow (lend) some from other person or from the bank on certain conditions. These conditions may include, time period of returning the money, demand of some extra money (interest) etc.
This section is concerned with solving such types of problems which arises between two parties or two persons i.e. how much extra amount should be charged, for how much time money should be borrowed, what should be the rate of interest etc. the concept of interest has also the application that is not related to money, which is called population growth rate. We shall first examine the nature of interest and its computations then we shall discuss several different investment situations and computations related to each.