A. You are considering the purchase of real estate that will provide perpetual income that should average $50,000 per year. How much will you pay for the property if you believe its market risk is the same as the market portfolio's? The T-bill rate is 3%, and the expected market return is 8.0%.

B. You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for the project are as follows:

Years Cash Flow

0-100

1-10+14

On the basis of the behavior of the firm's stock, you believe that the beta of the firm is 1.41. Assuming that the rate of return available on risk-free investments is 5% and that the expected rate of return on the market portfolio is 13%, what is the net present value of the project?

C. A project under consideration has an internal rate of return of 15% and a beta of 0.8. The risk-free rate is 5%, and the expected rate of return on the market portfolio is 15%.

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?

D. We Do Bankruptcies is a law firm that specializes in providing advice to firms in financial distress. It prospers in recessions when other firms are struggling. Consequently, its beta is negative, 0.2.

a.If the interest rate on Treasury bills is 5% and the expected return on the market portfolio is 20%, what is the expected return on the shares of the law firm according to the CAPM?

b.Suppose you invested 90% of your wealth in the market portfolio and the remainder of your wealth in the shares in the law firm. What would be the beta of your portfolio?