1) Ms. Smith borrowed P125,000 at 11% stated rate of interest and was to pay back the loan in 24 monthly payments. What is her effective rate of interest? A. 10.56% C. 21.12% B. 18.96% D. 22.00% 2) Kenneth's Arrows and Bows borrow P10,000 for one year at 12% interest. What is the effective rate of interest if the loan is discounted? A. < 12.5% C. > 13.5% but < 14.5% B. > 12.5% but < 13.5% D. > 14.5% 3) Koopman's Chickens, Inc. plans to borrow P300,000 from its bank for one year. The rate of interest is 10%, but a compensating balance of 15% is required. What is the effective rate of interest? A. < 11.4% C. > 11.6 % but < 11.8 % B. > 11.4% but < 11.6% D. > 11.8 %
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.
1) Ms. Smith borrowed P125,000 at 11% stated rate of interest and was to pay back the loan in 24 monthly payments. What is her effective rate of interest?
A. 10.56% C. 21.12%
B. 18.96% D. 22.00%
2) Kenneth's Arrows and Bows borrow P10,000 for one year at 12% interest. What is the effective rate of interest if the loan is discounted?
A. < 12.5% C. > 13.5% but < 14.5%
B. > 12.5% but < 13.5% D. > 14.5%
3) Koopman's Chickens, Inc. plans to borrow P300,000 from its bank for one year. The rate of interest is 10%, but a compensating balance of 15% is required. What is the effective rate of interest?
A. < 11.4% C. > 11.6 % but < 11.8 %
B. > 11.4% but < 11.6% D. > 11.8 %
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