Foods Galore has a line of credit of $325,000 with an interest rate of 1.85 percent per quarter. The credit line also requires that 2.5 percent of the unused portion of the credit line be deposited in a non-interest-bearing account as a compensating balance. Food Galore's short-term investments are earning .48 percent per quarter. What is the effective annual interest rate on this arrangement if the line of credit goes unused all year? Assume any funds borrowed or invested use compound interest.
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.
Foods Galore has a line of credit of $325,000 with an interest rate of 1.85 percent per quarter. The credit line also requires that 2.5 percent of the unused portion of the credit line be deposited in a non-interest-bearing account as a compensating balance. Food Galore's short-term investments are earning .48 percent per quarter. What is the effective annual interest rate on this arrangement if the line of credit goes unused all year? Assume any funds borrowed or invested use
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