Management and Organizational Studies 2310A/B Chapter 5: CHAPTER RECAP

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 2310A/B
• Professor: Danny Morrison

Document Summary

To understand interest rates, it"s important to think of interest rates as a price, the price of using money. Ex. the interest you pay on your loan is the price you pay to be able to convert your future loan payments into the money needed to buy a car today. Interest rates are set by market forces, in particular the supply of and demand for funds. When the supply (savings) is high and demand (borrowing) is low, interest rates are low. : (ear) the total amount of interest that will be earned at the end of one year, expressed as a proportion of the amount invested at the beginning of the year. Adjusting the ear to an effective rate over different time periods. In general, by raising the interest factor (1 + r) to the appropriate power, we can compute an equivalent effective interest rate for a longer time period.