Types of Interest 1. Compound 1.

Is Interest an investor earns on his original investment, plus all the interest earned on the interest that has accumulated. Interest on interest. 1. A= p(1+r/n)nt 2. P = principal amount (the initial amount you borrow or deposit) 3. r = annual rate of interest (as a decimal) 4. t = number of years the amount is deposited or borrowed for. 5. A = amount of money accumulated after n years, including interest.

6. n = number of times the interest is compounded per year

2. Simple Interest 1. The interest earned on the original principal only. 1. I=prt 1. 'Interest' is the total amount of interest paid, 2. 'Principal' is the amount lent or borrowed, 3. 'Rate' is the percentage of the principal charged as interest each year. 4. 'Time' is the time in years of the loan. Economic Rent is the rent of land, labor and capital

Types of Financial Institutions

Financial institutions are the firms that provide financial services and advice to their clients. Financial institutions are generally regulated by the financial laws of government authority. Types: Commercial Banks accept deposits and provide security and convenience to their customers. insurance services mortgages loans credit cards Credit Unions are cooperative financial institutions controlled by the members of the union. The major difference between credit unions and banks is that the credit unions are owned by the members having accounts in it. Redwood Credit Union Velocity Credit Union Landmark Credit Union Stock Brokerage Firms acts as an intermediary between buyers and sellers to facilitate securities transactions. insurance securities mortgages loans credit cards money market check writing

Asset Management Firms are companies that invests its clients' pooled fund into securities that match its declared financial objectives. JPMorgan Chase Retailer are institutions that sell goods or commodities directly to consumers. WalMart Target Walgreens Insurance Companies poll risk by collecting premiums from a large group of people who want to protect themselves and/or their loved ones against a particular loss, such as fire, car accident, illness, lawsuit, disability or death. insurance services securities buying or selling service of the real estates mortgages loans credit cards check writing Building Societies Finance Companies Capital one city group credit suisse Met life The Stock Brokerage Firms are the other types of financial institutions that help both the corporations and individuals to invest in the stock market The prime functionality of Asset Management Firms is to manage various securities and assets to meet the financial goals of the investors Commercial banks accept deposits and provide security and convenience to their customers Loanable funds theory of interest Also known as the neo-classical theory of interest. Neo means New The loanable funds theory is an attempt to improve upon the classical theory of interest. It recognizes that money can play a disturbing role in the saving and investment processes and thereby causes variations in the level of income. The rate of interest is the price that equates the demand for and supply of loanable funds. This implies that interest is the price that equates the demand for loanable funds with the supply of loanable funds. Fluctuations in the rate of interest arise from variations either in the demand for loans or in the supply of loans or credit funds available for lending. The theory is an exaggeration of the functional relationship between the rate of interest and savings The loanable funds theory, the supply of loanable funds is sometimes increased by a release of cash balances, and sometimes diminished by the absorption of various savings into cash balances. The loanable funds theory is more realistic than the classical theory. The former is stated in real as well as money terms, whereas the latter is stated only in real terms. r = f (I,S,M,H). R= rate of interest H= desire of Hoard I= Investing F= Function S= Saving M= Money supply Time value of Money

THe idea that money is available at the present time is worth more than the same amount in the future due to its potential earning capcity.