Currently under consideration is a project with a beta, b, of 1.50. At this time the risk-free rate of return, R_, is 7% and the return on the market portfolio of assets, r_m, is 10%. The project is actually expected to earn an annual rate of return of 11%. If the return on the market portfolio were to increase by 10%, what would happen to the project's required return! What if the market return were to decline by 10%? Use the capital asset pricing model (CAPM) to find the required return on this investment. Based on your calculation in part b, would you recommend this investment? Why or why not? Assume that, as a result of investors becoming less risk-averse, the market return drops by 1 % to 9%. What impact would this change have on your responses in parts b and c? Douglas Keel, a financial analyst for Orange Industries, wishes to estimate the rate of return for two similar-risk investments -X and Y. Douglas's research indicates that the immediate past returns will act as reasonable estimates of future return. A year earlier, investment X had a market value of $20 000 and investment Y, of $55 000. During the year, investment X generated cash flow of $1500 and investment Y, of $6800. The current market values of investments X and Y are $21 000 and $55 000, respectively. Calculate the expected rate of return on investments X and Y using the most recent year's data. Assuming that the two investments are equally risky, which one should Douglas recommend? Why? An analyst predicted last year that the shares of Logistics Ltd would offer a total return of at least 10% in the coming year. At the beginning of the year the firm had a share market value of $10 million. At the end of the year it had a market value of $12 million even though it experienced a loss, or negative net income, of $2.5 million. Did the analyst's prediction prove correct? Explain using the values for total annual return