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Author Question: Assuming a risk-free rate of 8 percent and a market return of 12 percent, would a wise investor ... (Read 89 times)

Marty

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on: Jul 10, 2018
Assuming a risk-free rate of 8 percent and a market return of 12 percent, would a wise investor acquire a security with a beta of 1.5 and a rate of return of 14 percent given the facts above?
 
  What will be an ideal response?

Question 2

Which of the following activities of a finance manager determines how the firm raises money to pay for the assets in which it invests?
 
  A) financial analysis and planning
  B) investment decisions
  C) financing decisions
  D) analyzing and planning cash flows


amanda_14

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Reply #1 on: Jul 10, 2018
Answer to Question 1

r = RF + b(rm - RF)
= 0.08 + 1.5(0.12 - 0.08 ) = 0.14 = 14
Yes, a security with a beta of 1.5 should yield 14 percent rate of return.

Answer to Question 2

C


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