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Lesson · Finance Academy · Beginner

Interest rates

The price of money, compound interest, nominal and real rates.

An interest rate is the price of borrowed money: the borrower pays it, the lender receives it.

Compound interest is charged on both the initial amount and the interest already earned. Over a long horizon the difference becomes very large.

Rates affect asset prices: the higher the rates, the lower the present value of future income, so stock valuations often fall.