Magellan is adding a project to the company portfolio and has the following information: the expected market return is 11.6%,

Question

user100 [1]

3 years ago

12

Magellan is adding a project to the company portfolio and has the following information: the expected market return is 11.6%,

the risk-free rate is 3.6%, and the expected return on the new project is 15.4%. What is the project's beta?

Business

1 answer:

fredd [130] · Answer 1 · 2021-12-23T17:30:00+03:00

Answer:

The beta of the new project is 1.475

Explanation:

The beta is the measure of systematic or market risk associated to a stock. The beta is used in the calculation of the required/expected rate of return under the CAPM model. The CAPM model uses the following formula to calculate the required/expected rate of return,

r = rRF + Beta * (rM - rRF)

Plugging in the available variables, we can calculate the value of the beta.

0.154 = 0.036 + Beta * (0.116 - 0.036)

0.154 - 0.036 = Beta * 0.08

0.118 / 0.08 = Beta

Beta = 1.475

Magellan is adding a project to the company portfolio and has the following​ information: the expected market return is 11.6​%,

Magellan is adding a project to the company portfolio and has the following information: the expected market return is 11.6%,