Which concept is defined as the cost of borrowing money or the earnings from savings, expressed as a percentage?

Which concept is defined as the cost of borrowing money or the earnings from savings, expressed as a percentage?

• A. Fees
• B. Interest
• C. Balance
• D. Principal

Answer: (B)

Interest is the price you pay to borrow money or the earnings you receive from money you save, shown as a percentage. That percentage, the interest rate, is applied to the amount you borrow or the amount you deposit (the principal) to determine how much interest you owe or earn over a period, typically a year. For example, borrowing $1,000 at a 5% annual rate would cost about $50 in interest in one year, while saving $1,000 at 5% would earn about $50 in interest in the same period (before any compounding). The rate can be simple or compounded, which affects how much interest accumulates over time. This concept is distinct from fees (one-time charges), balance (how much money is in an account now), and principal (the original amount borrowed or invested, not the rate).

Interest is the price you pay to borrow money or the earnings you receive from money you save, shown as a percentage. That percentage, the interest rate, is applied to the amount you borrow or the amount you deposit (the principal) to determine how much interest you owe or earn over a period, typically a year. For example, borrowing $1,000 at a 5% annual rate would cost about $50 in interest in one year, while saving $1,000 at 5% would earn about $50 in interest in the same period (before any compounding). The rate can be simple or compounded, which affects how much interest accumulates over time. This concept is distinct from fees (one-time charges), balance (how much money is in an account now), and principal (the original amount borrowed or invested, not the rate).