INTEREST

From Agepedia

Jump to: navigation , search

INTEREST is the allowance made for the loan or forbearance of a sum of money, which is lent for, or becomes due at, a certain time; this allowance being generally estimated at so much per cent, per annum, that is, so much for the use of $100 for a year. Interest is either simple or compound. Simple interest is that which is allowed upon the principal only, for the whole time of the loan or forbearance. The money lent, or forborne, is called the principal; the sum paid for the use of it, the interest. The interest of $100 for OL <5 year, is called the rateper cent, and the sum of any principal and its interest, together, the amount.Compound interest is that which arises from any sum or principal in a given time, by increasing the principal, at fixed periods, by the interest then due, and hence obtaining interest upon both interest and principal. The accumulation of money, when placed at compound interest, after a certain number of years, is exceedingly rapid, and in some instances appears truly astonishing. One penny, put out at 5 per cent, compound interest, at the birth of Christ, would, in 1810, have amounted to a sum exceeding in value 357,000,000 of solid globes of standard gold, each in magnitude as large as this earth ! (the exact number of globes, according to this computation, is 357,474,600); while, at simple interest, it would have amounted only to 7s. 7Id.