5. Example of Interest
Borrow $2,000 from the Bank
Jordan wants to borrow $2,000. The local bank
says "10% Interest". So to borrow the $2,000 for
one year will cost:
$2,000 10% = $200
In this case the "Interest" is $200, and the "Interest Rate" is 10%
(but people often say "10% Interest" without saying "Rate")
Jordan will have to pay back the original $2,000 after one
year, so this is what happens:
Today
Bank Jordan
$2,000
$2,000
next Year
Jordan Bank
$2,000
$200
Interest
Jordan Borrows $2,000, but has to pay back $1,200