Question

The amount paid to borrow money, which covers the lender's costs of doing business and provides a profit.

a) Principal
b) Interest
c) Escrow
d) Amortization

Answer 1

The correct answer is b) Interest. Interest is the amount paid to borrow money, which covers the lender's costs of doing business and provides a profit.

Step-by-step explanation:

The correct answer is b) Interest.

Interest is the amount paid to borrow money, which covers the lender's costs of doing business and provides a profit. When borrowers repay what they owe, they also pay the bank a percentage of the amount lent as interest.

For example, if an individual borrows $1,000 from a bank at an interest rate of 5%, they would need to repay the $1,000 borrowed plus an additional $50 as interest ($1,000 x 5%). This interest is the amount that the bank earns as profit for lending the money.