College students are now graduating with loan debts averaging $24,000. a. If students repay their loan of $24,000 over 10 years with an annual effective interest rate of 8.3%, what will their annual payment be? b. What is the annual payment going to be when the interest rate is 9.6%, continuously compounded each year? c. What is the effective interest rate in Part (b)?
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
College students are now graduating with loan debts averaging $24,000.
a. If students repay their loan of $24,000 over 10 years with an annual effective interest rate
of 8.3%, what will their annual payment be?
b. What is the annual payment going to be when the interest rate is 9.6%, continuously
compounded each year?
c. What is the effective interest rate in Part (b)?
Step by step
Solved in 6 steps