Interest Rate
The cost of money
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The interest is the cost of money and is measured by the interest rate where
interest rate = cost of having money available for use
The interest rate is a percentage that is periodically added to an amount of money over a specified length of time. If money is borrowed the interest rate is the percentage of the borrowed amount that is paid to the borrower as a compensation for the use of the borrowed property.
Interest reflects that
- money available today has a greater value that money received in the future
The future value of a present amount can be expressed as
F = P (1 + i)n (1)
where
F = future value
P = present value
i = interest rate per period
n = number of interest periods
Example - Accumulated Value
The accumulated value of an amount of present value 1 today and the interest rate 10% in a 10 years period can be expressed like
| Year | Accumulated Value |
| 0 | 1 |
| 1 | 1.1 |
| 2 | 1.21 |
| 3 | 1.33 |
| 4 | 1.46 |
| 5 | 1.61 |
| 6 | 1.77 |
| 7 | 1.94 |
| 8 | 2.14 |
| 9 | 2.36 |
| 10 | 2.59 |
Interest Rate - Online Calculator
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Related Topics
- Economics - Engineering economic concepts - cash flow diagrams, discount rate, internal rate of return - IRR, income taxes, inflation
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Related Documents
- Cash Flow Diagrams - Time and value of future money
- Discount Rate - The Present Value of future money
- Discrete Compounding Formulas - Discrete compounding formulas with discrete payments
- Interest Formulas - Single cash flow formulas
- Internal Rate of Return - IRR - Internal Rate of Return - IRR - the project break-even interest rate
- Net Present Worth - NPW - of a Stream of Payments - Net Present Worth - NPW - or Value of a stream of payments
