Question

A firm is considering a capital investment. The risk premium is 0.050.05​, and it is considered to be constant through time. Riskless investments may now be purchased to yield 0.066 ​(66​%). If the​ project's beta ​(betaβ​) is 2.02.0​, what is the expected return for this​ investment?

Answer 1

16.7%

Step-by-step explanation:

This is how I have interpreted your question.

Risk premium = 0.050

Risk free rate = 0.066

Beta = 2.02

Expected return = [0.066 + (2.02 * 0.050)] * 100%

= 16.7%

Risk Premium = Market Return - Risk Free rate

The formula for any variable would be as follows

E(R) = Rf + (B * (Mr - Rf)), where Mr is market return

Hope that helps.