Interest Rates

The video explains how banks operate by providing a safe place for money and making profits through loans. It details how interest is charged on loans, making large purchases more expensive over time. An example of buying a house with a loan illustrates the cost of interest. The concept of simple interest is explained with a formula. The video also covers how banks pay interest on savings accounts, though at lower rates, and why people seek other investment options.

What is the primary way banks earn money from loans?

• By charging a fee for account maintenance

• By investing in the stock market

• By charging interest on the money borrowed

• By selling financial products

How does the interest rate affect the total cost of a loan?

• It has no effect on the total cost

• It decreases the total cost

• It only affects the monthly payments

• It increases the total cost

What is the formula for calculating simple interest?

• Principal x Rate x Time

• Principal - Rate - Time

• Principal + Rate + Time

• Principal / Rate / Time

If a house costs $200,000 and the interest is $240,000, what is the total amount paid?

• $400,000

• $200,000

• $240,000

• $440,000

Why might a savings account not be the best way to grow wealth?

• Because it requires a large initial deposit

• Because it is not secure

• Because it offers low interest rates

• Because it charges high fees