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How Does Intrest Work

What is and how does simple interest work?

Simple interest is good. Simple interest is when you don't pay interest on the principle and interest together-in other words you only pay interest on the principal. Compounded interest is when interst is paid on the principal and the interst accumulated thus far.

When you borrow money its good to have simple interest.
When you invest it's good to have compound interest.

How does interest work?

Hi, rather than explaining how interest works, I'll go one step further and show you how to calculate your interest month by month.

Assuming your aunt borrows $500 from you and both of you agreed the interest rate should be 5%.

At the end of the first month, your interest will be $500 x 5% / 12 months = $2.08. You add this interest to the loan amount. So, she owes you $502.08.
- If she pays you back $50, then $502.08- less $50 = $452.08. At the end of the 1st month she owes you $452.08
- If she doesn't pay you back anything, then at the end of the first month, she owes you $502.08

Now in the 2nd month, your interest will be $452.08 x 5% / 12 = $1.88 months (or $502.08 x 5% / 12 = $2.09 ). Add this to $452.08 (or $502.08 if she didnt pay you anything) and repeat the steps you did in the 1st month.

Do this until your aunt pays you back all the loan.

Now that you know how to calculate interest, you should already know how interest works.

How does interest on a CD work?

The exact answer will depend on the exact method of compounding but at these levels of interest rates and amounts, the difference is probably going to be worth less than one order of onion rings (small).

2% is the rate per year. So, for 10 months, prorate it down to 2 x 10 / 12 = 1.67% This is what your money grows in 10 months.

This means that $100 in 10 months at this rate will end up as $101.667. You have $2000, so that's 20 times $100. You should end up with 20 x $101.667 = $2033.34.

HTH. Re. compounding method - its enough to know that more often the interest compounded, faster your money grows. The difference can add up to sometime nice over lots of years and larger sums of money. What we calculated above should be the bottom of the growth range.

Pinterest works just like all the other social media sites, except they did a few things different. Pinterest is used 90% by females and is known for it’s bright images, decor, food recipes, fashion and a lot of other topics associated with the female demographic.Another big differentiator is the style the posts show up—this was a very innovative and risky design choice when Pinterest first launched. They use a ‘billboard’ style design where the posts seem very disorganized but very organized at the same time. The posts are spaced uniformly horizontally and take up the same exact space, but vertically, posts can vary in height. Long, vertical images are more ideal for sites like Pinterest and Google+. It’s easier if you go there and see what I’m talking about, rather than explaining it.Other than that, everything is pretty much the same as other social media platforms such as Twitter and Instagram—you can follow people, people can follow you, you have a custom Pinterest URL, Pinterest has an app, you can post images/links. It is very much image-driven like Instagram though… Just like Instagram, you can not post just text, it has to be an image/link with an image.

How does credit card interest work?

Let's use a more realistic interest rate of 12% annually or 1% a month. Now, let's also say that you use your card the first month you get it for $100. Sometime within the next few weeks, you will receive a bill for the $100 (when you receive the bill depends on your closing/statement date...it could be anywhere from a few days to three weeks after you use the card).

Now, when you get the bill, you will see a minimum payment - that is the least amount you can pay towards your balance without going past due (which is not a good thing). So now you have three options - pay the entire $100, pay the minimum payment, or pay somewhere in between.

If you pay the entire $100, you will not be charged interest, If you pay less than $100 (but at least the minimum payment) you will be charged finance charges. If you don't pay or pay less than the minimum, you will get charged finance charges plus a late fee for not making at least the minimum.

Finance charges are based on something called the average daily balance. In our example, if you paid $50 toward the $100 balance, that would leave a balance of $50. But, making believe you paid exactly halfway through the billing cycle, your average daily balance would be $75 which is what you get charged the finance charge on. At 1% a month, that is 75 cents, o your new balance would be $100 - $50 + 0.75 = $50.75,

Hope this helps.

You should also read my answer to the question, What is "carried interest"?Carried interest is a tax-advantaged method of compensating investment managers by structuring their income as capital gains income (taxed at maximum rate of 20%) instead of ordinary income (maximum rate of 39.6%).  This is accomplished by using a tax partnership. References to Sections (i.e. §) are references to the Internal Revenue Code.Tax partnerships are pass-through entities, which means that all of the gains and losses from the business pass through directly to the partners. § 701. If the partnership earns ordinary income, then each partner reports and pays the ordinary income tax rate on his share of that income. If the partnership earns capital gains income (say, by selling stock in a company or by selling other property), then each partner reports and pays the capital gains tax rate on his share of that income. The character of the income – whether ordinary income or capital gains income – is passed through to the individual partners, who then report that gain and pay the appropriate income tax rate on that income. § 702(b). When the Fund sells a company for a profit, this generates capital gains income because stock is a capital asset under § 1221. The Limited Partner generally only contributes capital (usually cash); any returns that are generated on the investment are therefore pure “returns on capital,” which everyone agrees qualifies for capital gains treatment.The General Partner, on the other hand, is compensated for his work in two different ways – the so-called 2-20 deal. First, he receives an annual management fee of 2% of all of the capital under his control. This income is characterized as ordinary income – i.e. potentially subject to the highest tax rate of 39.6%. Second, he receives a 20% “profits” interest in the partnership, which basically entitles him to 20% of the income and losses that the partnership generates for the year.When the tax partnership buys a company and later sells it later for a profit, this generates capital gains income, which is passed through to the partners.

Interest rate trades are usually referred to as a "swap", where one side pays a floating rate and the other pays a fixed rate. There are different types of derivative interest instruments, such as swaptions (an option on a swap). Generally, these are either used as speculation tools, and more commonly, as hedges, such as on a commercial real estate loan, where you may have taken out a floating rate on an acquisition, but would prefer to fix your rate in the current low interest rate environment. You enter into a swap agreement to hedge your interest rate risk, and pay a premium to fix your rate, that is likely a substantial amount of basis points lower than market fixed rates.

For the Federal Direct loans (formerly Stafford loans) it works this way:There are subsidized and unsubsidized loans.There is a fixed interest rate declared for each year, and you have a different loan for each year in college.  Thus after graduating in four years, you could have eight different direct loans each with a different interest rate and some would be subsidized and some not.For a subsidized loan the Federal Government does Not charge interest against the loan until six months after you receive your college degree, when the payments must start.For an unsubsidized loan, the interest starts as soon as the money is given to the college you are attending.   However, the interest does Not compound until starting six months after you graduate when you must start repaying the loan.For a Private loan, (Bank or Sally Mae, etc) each has a different set of requirements, but they are either subsidized or unsubsidized (typically unsubsidized) and typically at a Higher interest rate than the current Federal Direct loan.  I hope that helps a little.