4. Suppose the risk-free rate is 5%, and the average investor has a risk-aversion coefficient of, and the standard deviation of the market portfolio is 20%. A. What is the expected return on the market portfolio? B. Suppose we estimate the beta of Delta as. Based on the CAPM's expected return-beta relationship, what is the expected rate of return on Delta? C. Suppose Delta is considering a new airline route and it forecasts an internal rate of return of 11% on the investment. Based on the estimated expected return on Delta in Question B, do you have to accept or reject the new project as a financial manager?
4. Suppose the risk-free rate is 5%, and the average investor has a risk-aversion coefficient of, and the standard deviation of the market portfolio is 20%. A. What is the expected return on the market portfolio? B. Suppose we estimate the beta of Delta as. Based on the CAPM's expected return-beta relationship, what is the expected rate of return on Delta? C. Suppose Delta is considering a new airline route and it forecasts an internal rate of return of 11% on the investment. Based on the estimated expected return on Delta in Question B, do you have to accept or reject the new project as a financial manager?
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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