Interest, its calculation, and return on investment

Publisher Summary This chapter introduces the concept of interest as payment for the use of capital, first in the money form, with examples. It presents the equation for calculating simple interest and expands the interest concept to the notion of return on investment, with a wide variety of examples. The examples are particularly meant to make the readers aware of the various places where they can use a financial analysis. Interest is payment for the use of capital, usually in the form of money. The traditional equation for interest computation is: Interest = Principal*Rate*Time. This is called “simple interest.” The interest rate is often expressed as a percentage rather than a decimal. The interest rate description must contain both a rate and the time-period to which that rate applies.