Interest

I) The price of borrowing money A) Expressed in terms of %. B) Payback is always greater than the loan.

II) Interest Rates A) What influences interest Rates? –i) Longer time/higher interest rate –ii) Higher risk/higher interest rate –iii) higher inflation/higher interest rate –iv) higher taxes/higher interest rate

Different Rates B) Prime Rate-Rate which banks loan $ to best customers. C) Corporate Bond Rate- Rate on $ loaned to corporations. D) Federal Funds rate-Rate banks pay to borrow $ from each other in the short run. E) Discount Rate-rate banks pay to borrow $ from Federal Reserve.

III) Consumer Credit & Interest A) High because: –i) Longer Time –ii) Higher Risk –iii) Costly to loan

Consumer Credit Con’t B) Higher interest rate means higher monthly payment/Total payment C) Total payment far higher than the loan D) Greater with time.