Margot company purchases $100,000 face amount, 6% semi-annual bonds for $110,000 when the market interest rate is 5%. margot should recognize the following interest revenue for the first 6-month period:
$3,000
Rationale:
$100,000 x (6% x 6/12)
The amount that the lender charges the borrower over and beyond the principal amount is referred to as the interest rate. A person who deposits money in a bank or other financial institution also earns additional income in terms of the recipient, known as interest, taking into account the time value of money.
The amount that a lender charges a borrower for the use of assets on top of the principal is known as the interest rate.
The money generated from a deposit account at a bank or credit union is likewise subject to an interest rate.
Simple interest is used in most mortgages. Compound interest, which is applied to both the principle and the accrued interest from earlier periods, is used in some loans, nevertheless.
The interest rate will be lower for a borrower who the lender deems to be low risk. The interest rate on a loan will be greater if it is thought to be high risk.
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