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** This lesson is generated with AI assistance and approved by Danny Nelson. This lesson will communicate the essence of the topic for now until Danny can create a full lesson. **
Interest refers to the cost of borrowing money or the return earned on savings and investments, typically expressed as a percentage of the principal amount.
It compensates lenders for the risk and opportunity cost of parting with their funds, while borrowers pay it as a fee for accessing capital.
Simple interest is calculated only on the initial principal, whereas compound interest is computed on the principal plus accumulated interest, leading to exponential growth over time.
Interest rates are influenced by factors like inflation, central bank policies, and market demand for credit.
Understanding interest is crucial for making informed decisions on loans, mortgages, credit cards, and investment vehicles.