*"Interest is the price one pays to have something now." It is related to a person's...
*"Interest is the price one pays to have something now." It is related to a person's level of patience. An impatient person is willing to pay a higher rate of interest to have something now.
*"The Theory of Interest," Irving Fisher, Yale University
Assume that you want to buy a car that costs $28000. You don't have the money to pay cash so you must borrow it from a bank. The bank will charge you interest on the loan, right?
Assume that you have $28000 in an account in a bank. You decide to use your own money to buy the car. You withdraw the $28000 from the bank. What are you giving up to have the car now? Interest!
Homework Answers
The difference between the interest rates also matters. As the bank provides loan on higher interest rate and give low rate of interest on the money kept in the bank. Therefore if we withdraw our money from bank to buy the car we lose less as the interest rate is minimal, but if we take loan and buy the car then the interest rate to be paid is higher. Here comes the above headed statement i.e. if the person is impatient he will take loan and buy the car providing higher rate of interest.
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