# what is Interest Rates

###### Posted on 01-05-2016 By leena

*what is Interest Rates:- CS notes mcq books*

Interest rate is the price demanded by the lender from the borrower for the use of borrowed money.

In other words, interest is a fee paid by the borrower to the lender on borrowed cash

as a compensation for forgoing the opportunity of earning income from other investments

that could have been made with the loaned cash. Thus, from the lender’s perspective, interest

can be thought of as an “opportunity cost’ or “rent of money” and interest rate as the rate

at which interest (or ‘opportunity cost’) accumulates over a period of time. The longer the

period for which money is borrowed, the larger is the interest (or the opportunity cost). The

amount lent is called the principal. Interest rate is typically expressed as percentage of the

principal and in annualized terms. From a borrower’s perspective, interest rate is the cost of

capital.