An automobile company is contemplating issuing stock to finance an investment in producing a new sportutility vehicle.

Question:

An automobile company is contemplating issuing stock to finance an investment in producing a new sport‐utility vehicle. The annual return to the market portfolio is expected to be 15% and the current risk‐free interest rate is 5%. The company’s analysts further believe that the expected return to the project will be 20% annually. What is the maximum beta value that would induce the auto maker to issue the stock?

Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...

Fantastic news! We've Found the answer you've been seeking!