About This Chapter
Interest Rate Types & Risks - Chapter Summary and Learning Objectives
Interest is nothing more than a fee paid for the privilege of using someone else's money. We pay interest when we borrow from a bank or lending institution of some kind, and banks pay interest to us when they use the money we deposit in savings, checking and investment accounts. In this chapter, our instructors will walk you through how interest is charged, how rates are set, the types of interest normally charged and some of the calculations involved. The lesson topics include the following material:
- Definition and explanation of simple interest
- How to compute simple interest
- Why and how credit card companies set an effective annual rate
- Explanation of interest rate risk and more
|What is Interest Rate? Definition, Types & History||Explain what interest is and how interest rates are set.|
|Comparing Variable & Fixed Interest Rate Loan||Distinguish variable vs. fixed rate interest.|
|How to Find Simple Interest Rate: Definition, Formula & Examples||Describe and calculate simple interest.|
|Effective Annual Rate: Formula & Calculations||Examine and assess the role of annual effective rates charged on credit card accounts.|
|Interest Rate Risk: Definition, Formula & Models||Discover how to compute interest rate risk.|
1. What is Interest Rate? - Definition, Types & History
Everything costs money, even money. In this lesson, you'll learn about interest rates - specifically, what they are, how they are determined, and what they mean for an individual and an economy.
2. Comparing Variable & Fixed Interest Rate Loans
Most people, at some point in their lives, will experience the process of getting a loan - perhaps for a house, car, education or something else. This lesson will describe the difference between the two types of interest rates commonly offered.
3. How to Find Simple Interest Rate: Definition, Formula & Examples
When we borrow a certain sum of money over a period of time, we agree that we will pay it back, along with a fee, known as the interest owed. Similarly, when we invest a sum of money in a savings account, the account earns us interest. This lesson will show you how to calculate a certain type of interest called simple interest.
4. Effective Annual Rate: Formula & Calculations
After watching this video lesson, you will understand how the interest rate that financial institutions, such as credit card companies, give you work. Also, learn how this interest rate may be different than the one you actually end up with.
5. Interest Rate Risk: Definition, Formula & Models
Interest rate risk is really the risk of two different events (price reduction and reinvestment rate reduction) caused by a change in interest rates. Interest rate risk affects bond investments, but the good news for bond investors is that it can be mitigated or eliminated.
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