DS: Billy Bob would like to purchase a new truck. The salesman has given BB 2 options for financing his truck. He can finance the $30,000 loan at 0% for 60 months, or he can receive a rebate amount and finance with his bank. He will apply the $2000 rebate and finance the difference if he finances with his bank. His bank is offering a rate of 5% for a 60 month loan. [5/2, 9:56 PM] DS: What is BB's payment if he takes the dealer's 0% offer? [5/2, 9:57 PM] DS: Would your recommendation change if BB said he was going to try and pay the loan off within 1 year? If so, how so?
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.
[5/2, 9:56 PM] DS: Billy Bob would like to purchase a new truck. The salesman has given BB 2 options for financing his truck. He can finance the $30,000 loan at 0% for 60 months, or he can receive a rebate amount and finance with his bank. He will apply the $2000 rebate and finance the difference if he finances with his bank. His bank is offering a rate of 5% for a 60 month loan.
[5/2, 9:56 PM] DS: What is BB's payment if he takes the dealer's 0% offer?
[5/2, 9:57 PM] DS: Would your recommendation change if BB said he was going to try and pay the loan off within 1 year? If so, how so?
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