You are the CFO of a major pharmaceutical firm. A division manager has presented senior management with an investment opportunity.

The project would require an investment of $95 million today

If the project succeeds, it will be worth $1 billion in a year. You estimate that there is only a 10% chance that the venture would succeed. If it fails, then in a year you will scrap the project and all of your firms $95 million investment will be lost.

Whether the venture succeeds or fails is independent of general market conditions.

The risk-free rate is 3%, the expected return of the market is 12%, and the standard deviation of the market return is 20%.

What is the beta of the project? What is the appropriate discount rate for the project under the assumptions of CAPM? [Hint: Whether the venture succeeds or fails is independent of general market conditions.]

Group of answer choices

0, 3%

1, 12%

1.5, 16.5%

0.5, 7.5%