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Question
Explain the features of Interest.
Solution
MEANING
- Interest is a payment made for using money of another person.
- Borrower takes money from the lender. Thus, for borrower, interest is the cost of renting money and for lender, interest is the income from his lending money.
- Company has to pay interest if it has borrowed money from creditors like Debentures holders, Depositors, Bond holders, etc.
FEATURES
- Interest is the price paid for the productive services rendered by capital.
- It is directly related to risk. The higher the risk, the higher is the interest.
- Rate of Interest is expressed as an annual percentage of Principal.
- The rate of interest is determined by various factors like money supply, fiscal policy, the volume of borrowings, rate of inflation, etc.
- Interest is a charge against the profit of the company. Even if the company makes no profit, interest should be paid.
- It is payable at a fixed and generally pre-determined rate. The company has to pay interest if it has borrowed money from creditors like Debentures holders, Depositors, Bondholders, etc.
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RELATED QUESTIONS
Write a word or a term or a phrase which can substitute the following statement.
The return paid to the creditors by the company.
State whether the following statement is true or false.
Interest is a liability for company.
Find the odd one.
Complete the sentence.
The obligatory payment made by company to its creditors is called as ______.
Select the suitable option for the following.
Interest ____________.
Select the suitable option for the following.
____________ Final Dividend.
Select the suitable option for the following.
Deposit Holders ____________.
Answer in one sentence.
What is Interest?
Correct the underlined word and rewrite the following sentence.
Interest is paid to shareholders.
Correct the underlined word and rewrite the following sentence:
Dividend is an obligation to be paid by a company every year.
Distinguish between the following:
Dividend and Interest
Justify the following statement.
Interest is a liability/obligation of the company.
Answer the following question.
What is Interest? Explain its features.
What do you mean by interest?
