The time value of money exists because of the interest rates.
An interest rate indicates how expensive borrowing is or how lucrative saving is. Therefore, if you are a lender, the equity rate is the sum you pay for borrowing money and is expressed as a proportion of the total loan amount. An illustration would be: You loan $15,000 for a car loan with a fixed interest rate of 5% over 48 months. Therefore, the total interest you'll pay throughout the loan's term will be $1,581. You would have to pay the equivalent of $1,909 in rate, or $328 more if you borrowed the same sum for the same length of time at a fixed interest rate of 6 percent.
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