Define interest. In calculating gross interest, what is payment for ri – InterviewSolution

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1.	Define interest. In calculating gross interest, what is payment for risk?
Answer» Interest is the price paid to the owner of capital for using the services of capital per period. Often the lender has to bear several other costs. He will lose if the borrower does not return the money in time. This may happen for several reasonsthe borrowers may become bankrupt or he may try to deceive the lender. For these reasons the borrower may due, he may become bankrupt on be may try to decide the lender. For these reasons, the lender has to take a risk. As a price for this risktaking, he extracts an amount from the borrower. This is added to the net interest.

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