You invested $150,000 in an interest-bearing account ten years ago. It is now worth $275,000 The account's effective yearly interest rate is 6.25%.
The cost of borrowing money is called interest, and it is typically stated as a percentage, like an annual percent rate (APR). For utilizing their money, borrowers can charge interest to lenders, or lenders may collect interest to borrowers.
There are several significant reasons why lenders require borrowers to pay interest. First off, when people borrow money, they are no longer able to utilize it to pay for their own purchases. This difficulty is made up for by the interest payment. Second, a borrower might stop making loan payments.
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