QUESTION 22

As a financial analyst, you are tasked with evaluating a capital budgeting project. You were instructed to use the IRR method and you need to determine an appropriate hurdle rate. The risk-free rate is 4 percent and the expected market rate of return is 12 percent. Your company has a beta of 1.1 and the project that you are evaluating is considered to have risk equal to the average project that the company has accepted in the past. According to CAPM, the appropriate hurdle rate would be ______%.

	A.	15.2
	B.	12.8
	C.	11.6
	D.	13.6
	E.	14.6

QUESTION 20

You invest $100 in a risky asset with an expected rate of return of 0.15 and a standard deviation of 0.20 and a T-bill with a rate of return of 0.06.

What percentages of your money must be invested in the risky asset and the risk-free asset, respectively, to form a portfolio with an expected return of 0.12?

	A.	65% and 35%
	B.	66.67% and 33.33%
	C.	55% and 45%
	D.	33.33% and 66.67%
	E.	cannot be determined

19. In the CAPM world, two securities, A and B, are priced efficiently, i.e., they fall on the SML. The expected return of A is 21%, and its beta is 1.8. The expected return of B is 13%, and its beta is 1. The expected return of the market portfolio is ___and the risk free rate is ___.

	A.	15% and 6%
	B.	14% and 4%
	C.	13% and 5%
	D.	13% and 3%
	E.	14% and 6%