that returm will be zero orQ2: A project with a beta of 1.50, risk-free rate 7%, and the return on the market portfolio, is 10%. The project isactually expected to carn an annual rate of return of 13%.a. If the return on the market portfolio were to increase by 10%, what would you expect to happen to the project'srequired return? What if the market return were to decline by 10%?b. Use the capital asset pricing model to find the required return on this investment.

In this we need to find out the required rate by capital asset pricing model.

Answered: A project with a beta of 1.50,…

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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A project has two possible outcomes. The good outcome returns $9,000 next year and occurs 59% of the time. The bad outcome is total failure, retuming $0 , the rest of the time. If the risk free interest rate is 3.2% , the expected market return is 12.6% , and the project beta is 1.1 , what is the price of the project today?
A project under consideration has an internal rate of return of 14% and a beta of 0.6. The risk-free rate is 99%, and the expected rate of return on the market portfolio is 14%. a-1. Calculate the required return. Required return 96
Assume that you have two investment alternatives: the first project produces $125 for sure, and the second project produces $150 with probability 2/5. You can borrow $110 from your financial institution for one project (investment) if you show an asset as a collateral. Suppose that you maximize your expected profit, what would be the minimum level of collateral that make you select the safe project?
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 of return 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 whole percent.) 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 as a whole percent.) d. If project's beta is 1.50, should the project be accepted?
(Capital Asset Pricing Model) Breckenridge, Inc., has a beta of 0.79. If the expected market return is 10.0 percent and the risk-free rate is 6.0 percent, what is the appropriate expected return of Breckenridge (using the CAPM)? The appropriate expected return of Breckenridge is %. (Round to two decimal places.)
A project has a forecasted cash flow of $121 in year 1 and $132 in year 2. The interest rate is 8%, the estimated risk premium on the market is 10.25%, and the project has a beta of 0.61. If you use a constant risk-adjusted discount rate, answer the following: What is the PV of the project? What is the certainty-equivalent cash flow in year 1 and year 2? What is the ratio of the certainty-equivalent cash flows to the expected cash?
Determine, using Capital Assets Pricing Model (CAPM), the Expected Rate of Return Risk free rate was 10% and Market return was 15% Asset D : return 14%, beta: 1.4
The risk-free rate is 7%. The expected rate of return on the stock market (S&P500) is 10%. What is the appropriate cost of capital for a project that has a beta of -0.2? Use CAPM formula. Select one: a. Cost of capital = 7.2% b. Cost of capital = 11% c. Cost of capital = 6.4% d. Cost of capital = 12%
Adam Andler Corp is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years. This is just one of many projects for the firm, so any losses on this project can be used to offset gains on other firm projects. What is the project's expected NPV? Do not round the intermediate calculations and round the final answer to the nearest whole number. WACC or cost of capital Net investment cost (depreciable basis) The salvage value of its equipment No other fixed assets will be acquired for following years The company will require an increase in net working capital at the $10,000 beginning The company will liquidate all working capital at the end of the project -10,000 Units sold (constant through years) 60,000 $30.00 $50,000 $17.00 Average price per unit, Year 1 Fixed operating…
(Capital Asset Pricing Model) Johnson Manufacturing, Inc., is considering several investments. The rate on Treasury bills is currently 7.5 percent, and the expected return for the market is 10.5 percent. What should be the expected rate of return for each investment (using the CAPM)? Security A B C D Beta 1.62 1.02 0.71 1.34 a. The expected rate of return for security A, which has a beta of 1.62, is%. (Round to two decimal places.)
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Observe the graph below and identify the internal rate of return. Assume that the discount rate is 8%. What is the net present value of the project? Briefly explain if the project is viable or not? NPV 50000 40000 30000 20000 10000 4 10 12 14 16 18 20 22 24 • 26 28 -10000 discount rate Edit View Insert Format Tools Table

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