1. What is Cost of Money?

Cost of Money represents the interest expense incurred when borrowing money. It calculates the total cost of interest over a specified period based on the principal amount, interest rate, and time duration.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( Interest\ Rate \) — Annual interest rate expressed as a decimal
• \( Principal \) — Initial amount of money borrowed or invested
• \( Time \) — Duration in years

Explanation: This formula calculates the total interest cost for simple interest scenarios, where interest is not compounded over time.

3. Importance of Cost of Money Calculation

Details: Understanding the cost of money is essential for financial planning, loan comparisons, investment decisions, and budgeting for interest expenses in personal and business finance.

4. Using the Calculator

Tips: Enter the principal amount in USD, interest rate as a decimal (e.g., 0.05 for 5%), and time in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on both principal and accumulated interest.

Q2: How do I convert percentage to decimal?
A: Divide the percentage by 100. For example, 5% becomes 0.05, 7.25% becomes 0.0725.

Q3: Can I use this for monthly calculations?
A: Yes, convert months to years by dividing by 12. For 6 months, use 0.5 years; for 18 months, use 1.5 years.

Q4: Is this suitable for all types of loans?
A: This calculator is designed for simple interest loans. For compound interest loans, different calculations are needed.

Q5: What factors affect the cost of money?
A: Interest rates, loan duration, principal amount, creditworthiness, and market conditions all influence the total cost.