Principles of Microeconomics / Unit 17 MIC 1635 short lesson, about 20 seconds
Capital and Interest, Restated
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The idea
The interest rate is capital's price, set where saving meets borrowing. A future sum is worth its present value at that rate; a firm invests while returns' present value exceeds cost, so capital demanded falls as the rate rises.
In practice
Bond prices fall when rates rise; payments unchanged.
Where people slip
Discount each date separately, by one plus the rate to the years' power.
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