A project under consideration has an internal rate of return of 13% and a beta of 0.8. The risk-free rate is 3%, and the expected rate ofreturn on the market portfolio is 13%.a. What is the required rate of return on the project? (Do not round intermediate calculations. Enter your answer as a wholepercent.)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 asa whole percent.)d. If project's beta is 1.80, should the project be accepted?Required rate of returnAccept the projecta.b.C.Required rate of returnd.Accept the project

CAPM is the model of valuing the required rate of return an investor wants from a company, It is the…

Answered: A project under consideration has an…

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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Mike Riskless is considering two projects. He has estimated the IRR for each under three possible scenarios and assigned probabilities of occurrence to each scenario. State of Economy Probability Estimated BTIRR Investment I Estimated BTIRR Investment II Optimistic 0.20 0.15 0.20 Most likely 0.60 0.10 0.15 Pessimistic 0.20 0.05 0.05 1.00 Riskless is aware that the pattern of returns for Investment II looks very attractive relative to Investment I; however, he believes that Investment II could be more risky than Investment I. He would like to compare the two investments considering both the risk and return on each. Required: a. Compute BTIRR under each of the three possible scenarios. b. Compute variance and standard deviation of the IRRs.
A project under consideration has an internal rate of return of 14% and a beta of 0.6. The risk-free rate is 996, and the expected rate of return on the market portfolio is 14%. а-1. Calculate the required return. Required return а-2. Should the project be accepted? Yes No
The investor has R60,000 to invest. R15,000 will be invested into the market portfolio, R10,000 into asset A and R25,000 into asset B. The balance will be invested into the risk-free asset. The beta for asset A and asset B is 0.90 and 1.2 respectively. What is the portfolio beta? What is the correct answer? A. 0.09 B. 0.90 C. 0.91 D. 0.92
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Compute the value of a real option using the following information: PV(project cash flows) = 51.6, NPV(project cash flows) = 1.6, Project upfront cost = 50, Risk-free rate = 4%, NPV volatility = 45.9%, Years to expiration = 1, d1 = 0.0674, d2 = -0.3795, N(d1) = 0.5269, N(d2) = 0.3522, el-04"1) – 0.960789 Round your answer to two decimal places, e.g. 92.993 --> 92.99, 92.987 --> 92.99
Suppose you have a project that has a 0.4 chance of tripling your investment in a year and a 0.6 chance of halving your investment in a year. What is the standard deviation of the rate of return on this investment? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places.) What is the standard deviation?
A firm must decide between investing in two alternative risky projects, each requiring the same initial investment. Project A has an equal probability of four possible payoffs: $80m, $100m, $120m or $140m. Project B has a 50:50 chance of a payoff of $90m or $126m. Assuming that the firm’s managers are risk averse, which project would they prefer, and why?
A project is economically feasible if: O a Its future worth is less than zero O b. Its annual worth is greater than 0 O .ts internal rate of return is equal to its external rate of return O d. Its external rate of return is less than the minimum attractive rate of return O e. Its external rate of return is greater than 0
A project has a beta of 1.25, the risk-free rate is 5.0%, and the market rate of return is 9.2%. What is the project's expected rate of return?
If the net present value of a project is zero based on a discount rate of 16%, then the internal rate of return is: Select one: O a. equal to 16% O b. greater than 16% O c. less than 16% O d. cannot be determined from this data
A project under consideration has an internal rate of return of 16% and a beta of 0.9. The risk free rate is 6% and the expected rate of return on the market portfolio is 16%. A. What is the required rate of return? B. Should the project be accepted? C. What is the required rate of return on the project if it's beta is 1.90? D. If the projects beta is 1.90 should the project be accepted?
A project under consideration has an internal rate of return of 14% and a beta of 0.6. The risk-free rate is 996, and the expected rate of return on the market portfolio is 14%. a-1. Calculate the required return. Required return a-2. Should the project be accepted? Yes No b-1. Calculate the required return if its beta is 1.6. Required return b-2 Should the project be accepted? Yes No

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