Interest is the price of obtaining credit. In the credit? market, the rate of in

Question

Interest is the price of obtaining credit. In the credit? market, the rate of interest paid depends on the

inflation or length of the? loan, the risk or labor force , and the handling?charges, among other things.

Nominal interest rates include a factor to take account of the realized or anticipated rate of inflation.? Therefore, during periods of high anticipated or realized ?inflation, nominal interest rates will be relatively high.

Payments received or costs incurred in the future are worth less than those received or incurred today. The

actual value or present value of any future sum is lower the further it occurs in the future and the greater the discount rate used.

Explanation / Answer

In credit market, rate of interest paid depends on length of loan, risk and handling charges.

Nominal interest rates include a factor to take account of anticipated rate of inflation. During high anticipated inflation, nominal interest rate will be high.

Present value of any future sum is lower the further it occurs in the future and the greater the discount rate used.

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