Homework Answers
| Required Return from the project as per CAPM = Risk free rate + beta*(Market Return - Risk Free Rate) | ||||
| Project | Risk free rate | Beta | Market Risk premium | CAPM Return |
| A | 3% | 0.6 | 8% | 7.80% |
| B | 3% | 1.3 | 8% | 13.40% |
| C | 3% | 1.5 | 8% | 15.00% |
| D | 3% | 1.7 | 8% | 16.60% |
| Acceptable projects are those whose expected return is higher than CAPM return | ||||
| i.e. Projects A, B and D | ||||
| Project C will be incorrectly accepted | ||||
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