Interest exists because money is a valuable asset. Money allows investors to invest and earn a return or yield. If money is lent, investors are denying themselves that opportunity, so access to money belonging to another party has to be paid for. The interest rate is the cost of accessing that money.
Key learning objectives:
Why does interest exist?
What is simple or nominal interest?
What is the periodic rate?
What is the effective annual rate?
What is the continuously compounded rate?
Introduction to Options, Pricing and Use Cases
Peter Eisenhardt • 13:18