INTEREST: THE PRICE OF MONEY
Money, like any other scarce resource, has a price. Individuals wishing to borrow money must pay this price, and those who lend it receive this price. The price of money is called interest and is usually expressed as a percentage rate over a certain time period (often per year but sometimes per month). The dollar amount of interest is the result of multiplying the percentage rate by the amount of money borrowed or lent (principal). For example, a 10 percent interest rate per year on a principal of $100 will produce $10 (10% X $100) of interest after one year.
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