Bank A pays 8% interest, compounded quarterly, on its money market account. The managers of Bank B want its money market account’s effective annual rate to equal that of Bank A, but Bank B will compound interest on a monthly basis. What nominal, or quoted, rate must Bank B set?
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.
Bank A pays 8% interest, compounded quarterly, on its
managers of Bank B want its money market account’s effective annual rate to equal that
of Bank A, but Bank B will
quoted, rate must Bank B set?
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