Now you turn your attention to estimating the likely returns on the project. You start with the probability distribution given by your primary consultant, which is in the Excel spreadsheet. The project's expected rate of return given these initial numbers is a. 7.40% b. 7.18% c. 6.14% d. 7.99%
Now you turn your attention to estimating the likely returns on the project. You start with the probability distribution given by your primary consultant, which is in the Excel spreadsheet. The project's expected rate of return given these initial numbers is a. 7.40% b. 7.18% c. 6.14% d. 7.99%
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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Concept explainers
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
Now you turn your attention to estimating the likely returns on the project. You start with the probability distribution given by your primary consultant, which is in the Excel spreadsheet. The project's expected rate of return given these initial numbers is
a. 7.40%
b. 7.18%
c. 6.14%
d. 7.99%
Transcribed Image Text:1
3
4
5
8
9
0
5
A
9
0
1
Risk free
Bonds Data
Treasury Bond
7 Preferred stock
inflation (5 years)
inflation (next 5)
MRP (formula)
DRP
LP
Maturity
B
Bonds outstanding (semi
annual)
Currrent Price
coupon rate
Years to Maturity
Par Value
Par value
Dividend Rate
Current price
Common Stock
C
Strong
Normal
Weak
D
Prob
50%
30%
20%
0.07
0.02
0.01
tm =
0.001 X (tm-1) matur
0.001
0.001
10
$1,154
12.0%
15
1000
Current price
Last dividend
Growth rate
Beta
Market return
Consultant's Forecasts of the project's returns
Economic Conditions
$100
10.0%
$111
$50.00
$4.19
5.0%
1.2
13%
E
Return
20%
10%
-28%
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