4. Suppose the risk-free rate is 5%, and the average investor has a risk-aversion coefficient of, and the standard deviation of the market portfolio is 20%. A. What is the expected return on the market portfolio? B. Suppose we estimate the beta of Delta as. Based on the CAPM's expected return-beta relationship, what is the expected rate of return on Delta? C. Suppose Delta is considering a new airline route and it forecasts an internal rate of return of 11% on the investment. Based on the estimated expected return on Delta in Question B, do you have to accept or reject the new project as a financial manager?
4. Suppose the risk-free rate is 5%, and the average investor has a risk-aversion coefficient of, and the standard deviation of the market portfolio is 20%. A. What is the expected return on the market portfolio? B. Suppose we estimate the beta of Delta as. Based on the CAPM's expected return-beta relationship, what is the expected rate of return on Delta? C. Suppose Delta is considering a new airline route and it forecasts an internal rate of return of 11% on the investment. Based on the estimated expected return on Delta in Question B, do you have to accept or reject the new project as a financial manager?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:4. Suppose the risk-free rate is 5%, and the average investor has a
risk-aversion coefficient of, and the standard deviation of the
market portfolio is 20%.
A. What is the expected return on the market portfolio?
B. Suppose we estimate the beta of Delta as. Based on the
CAPM's expected return-beta relationship, what is the
expected rate of return on Delta?
C. Suppose Delta is considering a new airline route and it
forecasts an internal rate of return of 11% on the investment.
Based on the estimated expected return on Delta in Question
B, do you have to accept or reject the new project as a
financial manager?
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