And this would happen: While the bank with 5.5 interest would experience a demand for loans, the bank with 6 percent interest would experience a surge in deposits. As a result, the interest rate at the first bank would increase while the interest rate at the second bank would decrease.
Certificates of deposits are important because they are time deposits, which are similar to savings accounts. They are virtually riskfree because they are insured.
Certificates of deposits are important because they are time deposits, which are similar to savings accounts. They are virtually riskfree because they are insured.
Require Rate of Return is formulated as: Riskfree Rate + Beta(Risk Premium) Required Rate of Return = 4.25 + 1.4 (5.50) = 11.95%
Expected return= risk free rate + Risk premium = 11 rate of return on stock= Riskfree rate + beta x( expected market return- risk free rate)