4.4 Interest
When you loan money in Sweden, for example from a bank, you must pay interest. If you save money you then receive interest. Interest is then the price of loaning or loaning out money, and is usually a portion (percentage) of the amount loaned. If you pay the same interest each year, we call it *fixed interest*, and we can calculate the interest by using the rate of change.
**Loan Debt**
A person has loaned 5,000 kr from a bank. He will pay 8 % interest every year. He will pay the entire loan back after three years.
After one year the interest at 8 % of 5,000 kr costs:
0.08 **·** 5,000 kr = 400 kr.
The entire debt is then: 5,000 kr + 400 = 5,400 kr
Then you do the same calculation for each year.
You can also directly calculate the debt this way by using the rate of change:
The debt after 1 year:
The debt after 2 years:
The debt after 3 years:
This multiplication can also be written as a power:
1.08^{3} **·** 5,000 kr = 6,299 kr
By using powers, you can calculte the total debt after *n* number of years:
1.08^{n} **·** 5,000 kr |