Question
Assume the risk-free rate of interest is 5% and the expected return on the market is 12%. If you are evaluating a project with a
Assume the risk-free rate of interest is 5% and the expected return on the market is 12%. If you are evaluating a project with a beta of 1.3 and an IRR of 17%, and you draw the security market line (SML) to guide your decision, which of the following statements is true?
| a. | The vertical intercept of the SML will be 7%. | ||||||
| b. | The projects IRR of 17% falls on the SML. | ||||||
| c. | The projects IRR of 17% falls below the SML and the project should be rejected. | ||||||
| d. | The projects IRR of 17% falls above the SML and the project should be accepted. | ||||||
| e. | The expected return on the market will graph on the SML corresponding with the beta of 1.3. | ||||||
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Financial Accounting
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
IFRS 3rd edition
978-1118978085
