Question

Why are investors willing to pay interests to acquire loanable funds? Why are lenders willing to loan funds?

Answer 1

Investors are willing to pay interest to acquire loanable funds because they can use the borrowed funds to invest in profitable projects that will generate returns greater than the interest rate paid on the loan.

Lenders are willing to loan funds because they can earn interest income on the loan, which is a return on their investment. In addition, lending provides lenders with a way to diversify their investments and spread out their risk.

Answer 2

Investors are willing to pay interest to acquire loanable funds because they need the money to finance their projects or investments. The interest they pay is the cost of borrowing the money, and it allows them to invest in their projects or businesses without having to use their own capital.

Lenders are willing to loan funds because they earn interest on the money they lend. This interest is the compensation they receive for taking on the risk of lending the money. Lenders also benefit from the fact that they can earn a return on their money without having to invest it themselves, which makes lending a profitable business.