Our first goal in this lesson is to recalculate the interest earned and value of the account, this time calculating the next year's interest on the entire value of the account (including previously earned interest), rather than just on the principal amount. Compute the amount of interest earned during the second year if that amount is 5% of both the principal amount of $600 AND the $30 in interest that was already earned in the first year. Find the new ending value as well.
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.
Our first goal in this lesson is to recalculate the interest earned and value of the account, this time calculating the next year's interest on the entire value of the account (including previously earned interest), rather than just on the principal amount.
Compute the amount of interest earned during the second year if that amount is 5% of both the principal amount of $600 AND the $30 in interest that was already earned in the first year. Find the new ending value as well.
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