Question

What is the fee charged by a lender to a borrower for the use of borrowed money also the return on an investment?

Answer 1

The fee lenders charge borrowers for the use of money and the return on investment is known as interest. Stocks have higher historical returns than bonds or savings accounts. Simple interest can be calculated using the formula involving principal, rate, and time.

Step-by-step explanation:

The fee charged by a lender to a borrower for the use of borrowed money, as well as the return on an investment, is known as interest. When money is deposited in a savings account at a bank, the depositor earns interest, which is a percentage of the deposit. This is the same principle when it comes to borrowing money for purchasing items like cars or computers, where the borrower must pay interest on the funds that are loaned.

Historical returns show that, on average, stocks have a higher return over time when compared to bonds and savings accounts. This is because stocks, which represent ownership in a company, can grow in value as the company grows and can also provide dividends to the shareholders. While higher risk can sometimes lead to higher rewards, it doesn't necessarily guarantee low returns; however, it does increase the potential for loss.

To calculate simple interest: use the formula Interest = Principal × Rate × Time. For a $5,000 loan at a 6% interest rate over three years, the total amount of interest would be $900 (5,000 × 0.06 × 3). Similarly, if $500 in simple interest was earned on a $10,000 loan over five years, the interest rate charged would have been 1% (500 / (10,000 × 5)).

Answer 2

The fee charged for the use of borrowed money and the return on investment is known as the interest rate. Stocks typically yield a higher average return compared to bonds and savings accounts. High-risk investments can potentially offer higher returns, not necessarily low ones.

Step-by-step explanation:

The fee charged by a lender to a borrower for the use of borrowed money, and the return on an investment, is commonly referred to as the interest rate. This is the percentage of the principal amount that is paid by the borrower over a certain period of time. For example, banks earn profits by lending money at interest, which implies that there is an additional cost on top of the amount lent that the borrower must pay back.

When considering different investment options, stocks generally have a higher average return over time compared to bonds or a savings account. This is because stocks have the potential to grow in value more significantly, although they also come with higher risk. However, having a high risk does not guarantee low returns. In fact, high-risk investments often offer the potential for higher returns to compensate for the increased risk.

The total amount of interest from a $5,000 loan after three years with a simple interest rate of 6% would be $900 ($5,000 x 0.06 x 3). For a loan of $10,000 at simple interest earning $500 over five years, the interest rate charged would be 1% per annum ($500 is 1% of $10,000 over five years).