QUESTION 14 The annual nominal rate is jm = 0.15pa. What is the effective annual rate as a percentage to two decimal places? The number of compounding periods is 11. Enter your answer as a decimal eg 17.42% = .1742 to four decimal places. Accuracy of one basis point. Tip: use excel to get the required accuracy. QUESTION 15 The CAPM predicts that an asset with a beta of zero will offer a return equal to Rf. True False QUESTION 16 Copy of Figure 7.12 Security market line Security market Asset 2 line 17.5- 3 15.0 Asset 1 Expaded return E (R) 12.5 - 10.0 Risk (B) Refer to the diagram above from PBEHP 12th Ed, page 193. Which of the following statements is correct. Note there may be more than one correct. The slope of the SML can be calculated by referring to any two points on the SML, for example the points representing Assets 1 and 2. Slope is equal to difference in return divided by difference in beta (.175 - .125)/(1.5 - .5). All projects plotting on the SML have an NPV of zero Aproject with a beta of 1.3 requires a return greater than 16.5% in order to add value If Asset 2 has an IRR greater than15%% then it should be accepted (according to the SML and the firm objective of maximising value. If we combine asset 1 and asset 2 in equal proportions then the average beta would be one Asset 2 is a better investment than Asset 1 A risk averse investor would invest only in the riskfree asset as it has no risk