Final answer:
Capital is paid according to the ownership structure, and this payment can take the form of interest, dividends, or retained profits within a firm. Firms have various ways to raise capital, and investors expect a return on their investment.
Step-by-step explanation:
Capital is paid according to the ownership structure, regardless of whether this income is transmitted to households in the form of interest or dividends, or whether it is kept within firms as retained earnings. When firms raise financial capital, they can do so from early-stage investors, by reinvesting profits, by borrowing through banks or bonds, and by selling stock, and they must decide how to compensate the providers of that capital.
Investors who supply financial capital through saving expect to receive a rate of return, and those who demand financial capital by receiving funds expect to pay a rate of return. This exchange of capital for a rate of return manifests in forms like interest and dividends for the use of financial capital through loans and equity investments, or profit for entrepreneurship, which is what entrepreneurs earn for taking the risk of starting and operating a business.