Interest

Interest

Interestis considered to be the charge for the right to borrowing funds whichis normally expressed as a yearly percentage rate. Interest ispragmatically referred to as the payments from a borrower ordeposit-taking financial institutions to a lender or depositor of anamount above repayment of the principle sum (Fabozzi,& Mann, 2012).This assignment describes interest period, compound interest, futurevalue, maturity value, compound amount and period interest rate. Italso explains how these terms can be used in a business scenario.

Interestperiod

Interestperiod is simply referred to as the quantity of time in which theinterest is usually evaluated and then added to the principal amount.Typically, financial institutions usually quote the rates of intereston both monthly and annually. In a business scenario, interest periodis usually applied when a customer takes a loan or deposited someamounts. The time he or she will take to repay the loan is usuallydetermined so as to ensure that the loan is repaid back on time. Theinterest period can also be used when a client makes deposits in afixed account that progressively receives interest on deposits. Forexample, is a client takes $10,000 as a loan, he or she will beneeded to repay the loan in a period of one year or so depending onthe agreement with the financial institution.

Compoundinterest

Thisis pragmatically referred to as the interest that is evaluated on theoriginal amount and also on the accrued interest on earlier periodsof a loan or deposit. In finance, compound interest is also referredto as the total interest that is accumulated after more than oneperiod that will basically make a loan or deposit increase at aquicker rate. In a business scenario, the aspect of compound interestis applied when a customer deposit or takes a loan, the unpaidinterest is usually added to the principal balance and then becomespart of the new principal balance for the period of interest (Kasman,Vardar, & Tunç, 2011). Typically, the rate that compound interest accrues depends on thecompounding frequency since the higher the compounding frequency thehigher the compound interest. Compound interest is calculated bydeducting the initial principle from the future cost of the asset orloan.

Futurevalue, maturity value, compound amount

Futurevalue, maturity value, compound amount are considered to beaccumulated principal and interests after one or more periods ofinterests. In finance, future value is the amount that is oftenaccumulated over time that includes interest and principal while thecompound amount is the addition of interest to the principal amountor sum of a loan. On the other hand, maturity value is the amountthat is payable to a holder of a particular obligation as a maturitydate of the obligation (Fabozzi,& Mann, 2012).In the case of security, the aspect of maturity period is usuallysame as the par value of the security since it refers to theremaining principal balance on a bond or loan. In a businessscenario, the accumulated principal and interests can be used whendetermining the compounded amount and future cost of a particularsecurity or an asset together with its cost of maturity.

Periodicinterest rate

Thisis the interest rate that is reviewed on an investment or a loan overa set period of time when compounding happens over one time in aparticular year. Periodic interest rate is considered to be the rateper compounding period such as every month when the interest periodis yearly. Periodic interest rate can be applied in business whendetermining effective annual returns since it heightens the rate forevaluating interest for a single period of interest the number ofyearly rates is divided by the number of periods every year. Periodicinterest rate is usually evaluated by dividing the annual rate ofinterest with the number of times in a year.

References

Fabozzi,F. J., & Mann, S. V. (2012). *Thehandbook of fixed income securities*.McGraw Hill

Professional.

Kasman,S., Vardar, G., & Tunç, G. (2011). The impact of interest rateand exchange rate

volatilityon banks` stock returns and volatility: Evidence from Turkey.*EconomicModelling*,*28*(3),1328-1334.