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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.