Interest

At its core, interest is the rent for borrowed capital. Those who lend money temporarily forgo their own consumption or other opportunities and assume a certain risk of default. Interest is the financial reward for this willingness.

Compound interest reinforces this principle: Earned returns are added to the original principal and earn interest in the following period. This creates an exponential effect, through which the money generates even greater returns.

The term coupon is used for the fixed annual interest rate on a bond.