FFC Portfolio Average monthly returns are a follows: Factor PortfolioAverage monthly returns Mkt-r_f SMB HML PR1YR Factor Mkt SMB HML PR1YR Average Monthly Returns 0.61 0.25 You are considering making an investment in a project in the fast food industry and you believe that the project has the same level of non-diversifiable risk as investing in McDonald's stock. Your estimate of the four factor betas are: Using these estimates, and the fact that the monthly risk-free rate is 0.125%, what is your cost of capital? O The annual cost of capital of the investment opportunity is 5.95% The annual cost of capital of the investment opportunity is 1.50% 0.38 0.70 Beta estimate 0.687 -0.725 -0.561 -0.068
FFC Portfolio Average monthly returns are a follows: Factor PortfolioAverage monthly returns Mkt-r_f SMB HML PR1YR Factor Mkt SMB HML PR1YR Average Monthly Returns 0.61 0.25 You are considering making an investment in a project in the fast food industry and you believe that the project has the same level of non-diversifiable risk as investing in McDonald's stock. Your estimate of the four factor betas are: Using these estimates, and the fact that the monthly risk-free rate is 0.125%, what is your cost of capital? O The annual cost of capital of the investment opportunity is 5.95% The annual cost of capital of the investment opportunity is 1.50% 0.38 0.70 Beta estimate 0.687 -0.725 -0.561 -0.068
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter3: Risk And Return: Part Ii
Section: Chapter Questions
Problem 2P: APT
An analyst has modeled the stock of Crisp Trucking using a two-factor APT model. The risk-free...
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![FFC Portfolio Average monthly returns are a follows:
Factor PortfolioAverage monthly returns
Mkt-r_f
SMB
HML
PR1YR
You are considering making an investment in a project in the fast food industry and you believe that the project has the same level of non-diversifiable risk as investing in McDonald's stock. Your estimate of the four factor betas are:
Factor
Mkt
SMB
HML
PR1YR
Average Monthly Returns
0.61
0.25
0.38
0.70
Using these estimates, and the fact that the monthly risk-free rate is 0.125%, what is your cost of capital?
O The annual cost of capital of the investment opportunity is 5.95%
O The annual cost of capital of the investment opportunity is 1.50%
Beta estimate
0.687
-0.725
-0.561
-0.068](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F19e0fb0d-6ddd-4d07-ab61-7b96f1a589f0%2F68f15984-ca2d-480d-a4fa-9ff41825b238%2Fag2yq96_processed.png&w=3840&q=75)
Transcribed Image Text:FFC Portfolio Average monthly returns are a follows:
Factor PortfolioAverage monthly returns
Mkt-r_f
SMB
HML
PR1YR
You are considering making an investment in a project in the fast food industry and you believe that the project has the same level of non-diversifiable risk as investing in McDonald's stock. Your estimate of the four factor betas are:
Factor
Mkt
SMB
HML
PR1YR
Average Monthly Returns
0.61
0.25
0.38
0.70
Using these estimates, and the fact that the monthly risk-free rate is 0.125%, what is your cost of capital?
O The annual cost of capital of the investment opportunity is 5.95%
O The annual cost of capital of the investment opportunity is 1.50%
Beta estimate
0.687
-0.725
-0.561
-0.068
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