FUNDAMENTALS OF CORPORATE FINANCE
10th Edition
ISBN: 9781260013962
Author: BREALEY
Publisher: RENT MCG
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Chapter 25, Problem 20QP
Summary Introduction
To discuss: Matching the bond market issued by a foreign company in the bond market of appropriate countries.
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betas: A, 0.4
B, 1.5
C, -0.4
D, 1.7
Integrative―Risk, return, and CAPM Wolff Enterprises must consider one investment project using the capital
asset pricing model (CAPM). Relevant information is presented in the following table. (Click on the icon here in
order to copy the contents of the data table below into a spreadsheet.)
Item
Risk-free asset
Market portfolio
Project
4%
Rate of return
Beta, b
0.00
12%
1.00
1.28
a. Calculate the required rate of return for the project, given its level of nondiversifiable risk.
b. Calculate the risk premium for the project, given its level of nondiverisifiable risk.
a. The required rate of return for the project is %. (Round to two decimal places.)
b. The risk premium for the project is
%. (Round to two decimal places.)
Security market line (SML) Assume that the risk-free rate, RF, is currently 8% and that the market return, rm, is
currently 15%.
a. Calculate the market risk premium.
b. Given the previous data, calculate the required return on asset A having a beta of 0.8 and asset B having a beta
of 1.9.
a. The market risk premium is ☐ %. (Round to one decimal place.)
b. If the beta of asset A is 0.8, the required return for asset A is %. (Round to one decimal place.)
If the beta of asset B is 1.9, the required return for asset B is
%. (Round to one decimal place.)
Chapter 25 Solutions
FUNDAMENTALS OF CORPORATE FINANCE
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