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Annual Interest and Debt Maturity: CNBC Explains

CNBC Explains
Thursday, 21 Jul 2011 | 12:42 PM ET
Annual Interest and Debt Maturity: CNBC Explains
Wednesday, 20 Jul 2011 | 12:00 AM ET
A helpful method for understanding the cost of borrowing money is to annualize interest rates--that is, to compute the effective interest rate for any loan over a single year. This tactic offers an easy way to compare loans of varying maturities. One trend you'll notice is that loans with longer maturities generally require higher interest rates. What is the rationale behind this trend? Salman Khan of the Khan Academy explains.

A good way to conceptualize the cost of borrowing money is to annualize interest rates, which offers an easy way to compare loans of varying maturities. One trend you’ll notice is that loans with longer maturities generally require higher interest rates. What is the rationale behind this trend? Salman Khan of the Khan Academy explains.

From this video, you will understand:

  • Why long term borrowing tends to demand higher interest rates compared to short term
  • How risk factors in to higher interest rates on loans

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