6. Two years ago, you bought 300 shares of Kayleigh Milk Co. for $30 a share with a margin of 60 percent. Currently, the Kayleigh stock is selling for $45 a share. Assuming no divi- dends and ignoring commissions, compute (a) the annualized rate of return on this invest- ment if you had paid cash, and (b) your rate of return with the margin purchase
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.
6. Two years ago, you bought 300 shares of Kayleigh Milk Co. for $30 a share with a margin
of 60 percent. Currently, the Kayleigh stock is selling for $45 a share. Assuming no divi-
dends and ignoring commissions, compute (a) the annualized rate of
ment if you had paid cash, and (b) your rate of return with the margin purchase.
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