Question
1) The Treasury bill rate is 6%, and the expected return on the market portfolio is 12%. According to the capital asset pricing model: a.
1) The Treasury bill rate is 6%, and the expected return on the market portfolio is 12%. According to the capital asset pricing model:
a. What is the risk premium on the market? b. What is the required return on an investment with a beta of 1.7? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) c. If an investment with a beta of 0.6 offers an expected return of 8.2%, does it have a positive or negative NPV? d. If the market expects a return of 11.7% from stock X, what is its beta? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
2) A project under consideration has an internal rate of return of 12% and a beta of 0.8. The risk-free rate is 7%, and the expected rate of return on the market portfolio is 12%.
a. What is the required rate of return on the project? (Do not round intermediate calculations. Enter your answer as a whole percent.)
b. Should the project be accepted?
c. What is the required rate of return on the project if its beta is 1.80? (Do not round intermediate calculations. Enter your answer as a whole percent.)
d. If project's beta is 1.80, should the project be accepted?
3) The Treasury bill rate is 4% and the market risk premium is 14%.
Project | Beta | Internal Rate of Return, % | |||
P | 0.60 | 14 | |||
Q | 0.00 | 10 | |||
R | 1.00 | 18 | |||
S | 0.10 | 6 | |||
T | 0.80 | 20 | |||
a. What are the project costs of capital for new ventures with betas of 0.35 and 1.45? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)
Beta 0.35 = _____%
Beta 1.45 = _____%
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