• Mon
  • Dec 22, 2014
  • Updated: 2:01am

True or false

PUBLISHED : Monday, 07 January, 2008, 12:00am
UPDATED : Monday, 07 January, 2008, 12:00am

1 Per cent comes from a French word meaning for every one hundred.

2 LIBOR means low interest bank offered rate.

3 Credit history is the history of interest rate in a country.

4 Default is the word used when a borrower does not pay his loan back.

5 Principal is the amount of money borrowed initially.

6 Interest was/is banned in some religions.

The different types of interest

Simple interest: the interest is calculated on the amount you have borrowed, or principal. If you borrow $1,000, and the interest rate is 5%, the interest you have to pay after one year is $1,000 x 5% = $50.

Compound interest: is interest on the interest. Let's say, in the above example, you have not paid the interest of the first year, as required: the bank will charge you interest on the due interest on the second year. In year two, you will have to pay the interest on the principal for year one ($50), the interest for year two ($5) and the interest on the interest of year one (5% x $50 = $2.50). Why? Because if you pay interest too late, it becomes a debt and bears interest too.

Variable interest: interest can either be fixed for the whole length of the loan or it can vary according to a reference rate.

Real interest: is the interest rate minus the impact of inflation. If your saving account serves you 3% but inflation is 2%, in reality, you only get 1% (3% - 2%).

Here are a few activities you can research on this week's topic:

Go and visit a few banks and ask for the rates they could give you on:

1 A saving account

2 A credit card

3 A mortgage (loan to buy a house)

4 Read the newspaper and find out market interest rate.

Do research on the Hong Kong inflation rate and calculate the real interest rate on the types of loans/saving you have

Answers

1. true; 2. false, it means: London Interbank Offered Rate; 3. false: it is the record of payments default for a person, or credit score; 4. true; 5. true; 6. true (by Christians until the Renaissance and by Islam)

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