ShmoopTube

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finance a la shmoop. what is interest? well you know how common the catchphrase

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that's interesting is used? why well because something of interest is something of [man stands in theme park]

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value. right if it's interesting it's valuable to know. yeah that's where the

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notion of interest came from. so financially speaking the thing of value

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you have is your capital- your money- the dough you saved from mowing lawns all

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summer. and you can use that capital to make more capital for yourself without

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having to you know mow more lawns. all right well how do you pull off this

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magic? you invest your money and one interesting way to invest it in is in

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bonds, which conveniently for this video pay interest. well interest is just rent

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on the money you're loaning someone. and when you buy a bond you are the landlord,

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right you're renting out your money to someone else, that is people will pay you

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say 60 bucks a year to rent a thousand dollars from you the rate they're paying [kid rents money from a stand]

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then is 6% a year to rent that lawn-mowing grant. and if you were buying

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a formal publicly traded bond like the ones offered by say ATT or Comcast or

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Time Warner and others, well you'd be paid your interest twice a year. that is

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you'd get 30 bucks on June 30th and another 30 bucks just before New Year's

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Eve, just in time to buy a bunch of those obnoxious noisemakers. and you'd collect

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that interest until the bond says it'll pay you back your original amount called

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principle. so if this were a ten-year bond paying 6% interest well your

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little journey and renting your grand to AT&T would look like this - see you got

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June 30 2020 collect 30 and then it goes December and during the design it goes I [interest shown on document]

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don't know until you collect your thousand bucks. got it?

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note how much interest you made from the grand you invested in that 6% bond. you

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did nothing for 10 years just sitting on your fat butt watching the Cleveland

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Browns lose football games, and you collected 30 dollars 20 times for a

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total of 600 bucks in total interest, and then you got your grand

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back. 600 bucks for doing well pretty much nothing a concept with which the

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Cleveland Browns are oh so familiar. [man sleeps on couch holding cash]

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