4 ms·
Only a part of the interest comes from risk. One important part is that if I were to give you 10$ in 10 years, it has less value to you than me giving you 10$
by eonwe 9y ago
Only a part of the interest comes from risk.
One important part is that if I were to give you 10$ in 10 years, it has less value to you than me giving you 10$ now (which is the difference between lending you lending to me and you not lending to me if you were 100% sure I would pay back).
- mhuffman 9y agoTime value of money is also based on risk. You are betting that there is an alternative sure thing at which you could earn some expected rate.
- baursak 9y agoThe part that comes from risk in this case is the biggest chunk of the interest though. If we assume that AAA-rated have "no risk".