Interest: Unlocking the Secrets of Interest, Your Path to Financial Mastery

By Fouad Sabry

What is Interest

In the fields of finance and economics, interest refers to the payment made by a borrower or a financial institution that accepts deposits to a lender or depositor of an amount that is greater than the amount that is repaid for the principal sum, at a specific interest rate. Different from a fee that the borrower might have to pay to the lender or to a third party, this is a separate obligation. It is also distinct from dividends, which are payments made by a company to its shareholders (owners) from its profit or reserve. However, dividends are not paid at a predetermined rate; rather, they are distributed on a pro rata basis as a portion of the reward that is gained by risk-taking entrepreneurs when the revenue earned is greater than the total costs.

How you will benefit

(I) Insights, and validations about the following topics:

Chapter 1: Interest

Chapter 2: Present value

Chapter 3: Black-Scholes model

Chapter 4: Interest rate

Chapter 5: Time value of money

Chapter 6: Loan

Chapter 7: Usury

Chapter 8: Compound interest

Chapter 9: Fixed-rate mortgage

Chapter 10: Rational pricing

Chapter 11: Annual percentage rate

Chapter 12: Leverage (finance)

Chapter 13: Riba

Chapter 14: Rule of 78s

Chapter 15: Real interest rate

Chapter 16: Credit card interest

Chapter 17: Mortgage calculator

Chapter 18: Loans and interest in Judaism

Chapter 19: Amortizing loan

Chapter 20: Mortgage loan

Chapter 21: Equated monthly installment

(II) Answering the public top questions about interest.

(III) Real world examples for the usage of interest in many fields.

Who this book is for

Professionals, undergraduate and graduate students, enthusiasts, hobbyists, and those who want to go beyond basic knowledge or information for any kind of Interest.

• Language: English
• Publisher: One Billion Knowledgeable
• Release date: Feb 3, 2024

Book preview

Chapter 1: Interest

In finance and economics, interest is the payment by a borrower or deposit-taking financial institution to a lender or depositor of an amount in addition to the return of the principal sum (that is, the amount borrowed), at a specified rate.

A bank sign in Malawi listing the interest rates for deposit accounts at the institution and the base rate for lending money to its customers

For instance, a consumer would often pay interest to borrow from a bank, so they pay back more than they borrowed; alternatively a customer may receive interest on their savings, allowing them to withdraw more than they initially put. When it comes to savings, the client is the lender and the bank is the borrower.

Interest varies from profit in that a lender receives interest, whereas the owner of an asset, investment, or business receives profit. (Interest may be part or all of the profit on an investment, but from an accounting standpoint, the two concepts are distinct.)

The rate of interest equals the amount of interest paid or received during a specific period divided by the principal amount borrowed or lent (usually expressed as a percentage).

Compound interest indicates that interest is earned on interest that has already accrued in addition to the principal. The total amount of debt increases exponentially due to compounding, and its mathematical research led to the discovery of the number e. In practice, interest is calculated on a daily, monthly, or yearly basis, and the compounding rate has a significant impact on its impact.

Credit is believed to have existed prior to coinage by many thousand years. The earliest evidence of credit is a collection of ancient Sumerian records from 3000 B.C. that demonstrate the systematic use of credit to loan grains and metals. In the period of scholastics, the Catholic Church's aversion to interest hardened to the point where defending it was considered heresy. St. Thomas Aquinas, the leading Catholic theologian, maintained that charging interest is improper because it amounts to double charging, or charging for both the object and its usage.

In the medieval economy, loans were strictly a result of need (failed harvests, workplace fires), and it was deemed immoral to charge interest under such circumstances. It was also viewed as morally questionable, as no commodities were generated through loan money; hence, it should not be paid, unlike other industries with direct physical output, such as blacksmithing or farming. Similarly, practically all Islamic scholars agree that the Qur'an expressly condemns charging interest. This has led to widespread disapproval of interest in Islamic