The interest rate is the price that lenders receive and borrowers pay for debt capital.

Similarly, equity investors expect to receive dividends and capital gains, the sum of
which represents the cost of equity. There is no single interest rate—interest rates on
different types of debt vary depending on the borrower’s risk, the use of the funds
borrowed, the type of collateral used to back the loan, and the length of time the money
is needed.
Interest rate paid to savers depends on the rate of return that producers expect to earn
on invested capital, on savers’ time preferences for current versus future consumption,
on the riskiness of the loan, and on the expected future rate of inflation. In general, the
quoted (or nominal) interest rate on a debt security, r, is composed of a real risk-free
rate, , plus several premiums that reflect inflation, the security’s risk, its liquidity (or
marketability), and the years to its maturity.
‍

‍
An interest rate is defined as the proportion of an amount loaned which a lender
charges as interest to the borrower, normally expressed as an annual percentage. It
is the rate a bank or other lender charges to borrow its money, or the rate a bank
pays its savers for keeping money in an account.
Interest rates are the reward paid by a borrower (debtor) to a lender (creditor) for
the use of money for a period, and they are expressed in percentage terms per
annum (pa), for example, 6.525% pa, in order to make them comparable. Interest
rates are also quite often referred to as the price of money. This is not helpful. One
should rather refer to interest rates as being the rates (there are various) payable on
debt and deposit obligations (aka instruments and securities) by the borrowers to
the lenders, and that the prices of the debt and deposit obligations are derived from
the cash flows payable on the obligations in the future - by discounting the cash
flows by the rates payable.

Interest rates are the

reward paid by a
borrower (debtor) to a
lender (creditor) for
the use of money for a
period, and they are
expressed in percentage
terms per
annum (pa), for example,
6.525% pa, in order to
make them comparable.
Interest
rates are also quite
often referred to as the
price of money. This is
not helpful.
One should rather refer
to interest rates as
being the rates (there
are various)
payable on debt and
deposit obligations (aka
 instruments and
securities) by the
borrowers to the lenders,
and that the prices of the
debt and deposit
obligations
are derived from the
cash flows payable on
the obligations in the
future - by
discounting the cash
flows by the rates
payable
 For the borrower, the interest rate is the price he or she pays
for the use of money, as in a loan or as a price for credit.
 For the lender, the interest rate is the "fee" earned for taking
the risk to extend credit or to loan money to a borrower.
The interest rate is the price that lenders receive and borrowers pay for debt capital. Similarly,
equity investors expect to receive dividends and capital gains, the sum of which represents the cost
of equity. There is no single interest rate—interest rates on different types of debt vary depending
on the borrower’s risk, the use of the funds borrowed, the type of collateral used to back the loan,
and the length of time the money is needed.

Thus, we see that the interest rate paid to savers depends

1. on the rate of return that producers expect to earn on invested capital,

2. on savers’ time preferences for current versus future consumption,
3. on the riskiness of the loan, and
4. on the expected future rate of inflation.
Producers’ expected returns on their business investments set an upper limit to how much they can
pay for savings, while consumers’ time preferences for consumption establish how much
consumption they are willing to defer and hence how much they will save at different interest rates.
 Higher risk and higher inflation also lead to higher interest rates.

government policy can also influence the allocation of capital and the level of interest rates
 investors are willing to supply more capital the higher the interest rate they receive on their
capital. Likewise, the downward-sloping demand curve indicates that borrowers will borrow more
if interest rates are lower