Question: A private equity firm requested your help in deciding between two investments in the Medical Services Sector (Investment A and B). The following points should

A private equity firm requested your help in deciding between two investments in the Medical Services Sector (Investment A and B). The following points should be noted before making a decision on those two investments.

Investment A is currently trading at R1.25 per share and the following is estimated for the investment

Investment B has shown in the past that its returns are much more volatile than that of the market. This volatility is evident from a Beta of 1.4. The returns that can be achieved in this market is currently estimated at 18% and risk-free investments are attracting 8%.

-Calculate the rate of return for each of the events (A, B, C) that is associated with investment A

-Calculate the expected rate of return for investment A.

- Using the CAPM, calculate the required return from Investment B that will warrant an investment.

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