Interest 01

Question 1

1. From moneyhabits.com-Interest Explained.

What is INTEREST?

Answer 1

The COST of borrowing money, or the “RENT” paid for using someone else’s money.

Question 2

2. What is FIXED RATE INTEREST?

Answer 2

A “FIXED” percentage of the loan must be paid back during the life of the loan.

Question 3

3. Example of a FIXED RATE INTEREST LOAN, for 1,000 borrowed at 5%:

Answer 3

at 5% per annum, if the loan was paid off in 12 months, the total amount to be paid back is $1,050.

Question 4

4. What is a VARIABLE RATE INTEREST LOAN?

Answer 4

It allows the LENDER to set the INTEREST RATE to whatever market conditions demand AT ANY GIVEN TIME during the life of the loan.

Question 5

5. What is the advantage of a VARIABLE INTEREST RATE LOAN?

Answer 5

That you can benefit from any future drop in MARKET INTEREST RATES, as your MONTHLY REPAYMENTS will be reduced to reflect the market changes.

Question 6

6. What are the disadvantages of a VARIABLE RATE INTEREST LOAN?

Answer 6

That your payment may INCREASE if MARKET INTEREST RATES go up.

Question 7

7. What is APR?

Answer 7

ANNUAL PERCENTAGE RATE; the PERCENTAGE OF INTEREST payable on the loan BASED ON A YEARLY RATE.

Question 8

8. What is SIMPLE INTEREST?

Answer 8

SIMPLE INTEREST is calculated by multiplying the loan amount ($1,000) by the interest rate (5%) by the number of payment periods over the life of a loan.

Question 9

9. For SIMPLE INTEREST RATE calculations, you need to ensure that:

Answer 9

both the interest rate and the payment periods are expressed in the same manner, say, ANNUALLY or MONTHLY.

Question 10

10. What is the calculation for a simple interest loan of 4k at 5% per ANNUM for 2 years?

Answer 10

4000 x .05 x 2 = 4,400