Questions and Answers
What is the compensation paid by the borrower of funds to the lender?
Interest rate
Which term refers to the return that the supplier of funds requires the demander to pay?
Required return
What determines interest rates based on the interaction of supply and demand?
Interest rate
What applies to almost any kind of investment as the return that the supplier of funds requires the demander to pay?
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Which term refers to the cost of borrowing funds from the borrower's point of view?
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Study Notes
Interest and Compensation
- Interest is the compensation paid by the borrower of funds to the lender.
- It is the return that the supplier of funds requires the demander to pay.
- Interest rates are determined by the interaction of supply and demand in the market.
- Interest applies to almost any kind of investment as the return that the supplier of funds requires the demander to pay.
- From the borrower's point of view, interest is the cost of borrowing funds.
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