Question

A project under consideration has an internal rate of return of 15% and a beta of 0.6. The risk-free rate is 5%, and the expected rate of return on the market portfolio is 15%. a. What is the required rate of return on the project?

Answer 1

11%

Step-by-step explanation:

Data provided in the question:

Internal rate of return = 15%

Beta = 0.6

Expected rate of return on the market portfolio = 15%

Now,

Required return

= Risk-free rate + Beta × (Expected rate of return on market - Risk-free rate)

= 5% + 0.6 × ( 15% - 5% )

= 5% + 0.6 × (10%)

= 5% + 6%

= 11%

Hence,

The required rate of return on the project is 11%