A project under consideration has an internal rate of return of 18% and a beta of 0.5. The risk-free rate is 6%, and the expected rate ofreturn on the market portfolio is 18%.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 1.50? (Do not round intermediate calculations. Enter your answer asa whole percent.)d. If project's beta is 1.50, should the project be accepted?a.Required rate of return%b.Accept the projectс.Required rate of returnd.Accept the project

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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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Suppose that you found the probabilities and expected NPVs of 3 scenarios for a timing option: E(NPV) probability $0.15 0.30 $10.35 0.50 $42 0.20 1. What is the expected NPV of the timing option? Show your work. 2. Suppose, that the expected NPV of the project if proceeding today is $14. Should the project be delayed based on your finding in part 1 or should the management implement it today? Briefly explain.
Using image: a-1. What is the payback period for each project a-2. If you apply the payback criterion, which investment will you choose? b-1. What is the discounted payback period for each project? b-2. If you apply the discounted payback criterion, which investment will you choose? c-1. What is the NPV for each project? c-2. If you apply the NPV criterion, which investment will you choose? d-1. What is the IRR for each project? d-2. If you apply the IRR criterion, which investment will you choose? e-1. What is the profitability index for each project? e-2. If you apply the profitability index criterion, which investment will you choose? f. Based on your answers in (a) through (e), which project will you finally choose?
You have been given the following information: The required return of the market is 14.5% The risk free rate is 3.5% The beta for your investment is .95 Required: Calculate the required rate of return for your investment, with the above data Assume that that the beta for the investment is 1.95 calculate the new required rate of return for your investment.
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 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?
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?
Consider a single-index model economy. The index portfolio M has E(RM ) = 6%, σM = 18%.An individual asset i has an estimate of βi = 1.1 and σ2ei = 0.0225 using the single index modelRi = αi + βiRM + ei. The forecast of asset i’s return is E(ri) = 12%. rf = 4%. a) According to asset i’s return forecast, calculate αi. (b) Calculate the optimal weight of combining asset i and the index portfolio M . (c) Calculate the Sharpe ratio of the index portfolio M and the portfolio optimally combiningasset i and the index portfolio M .
A project has a beta of 0.91, the risk-free rate is 3.5%, and the market risk premium is 8.0%. The project's expected rate of return is %.

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