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Sisyphean industries is seeking to raise capital from a large group of investors to fund a new project.Suppose that the efficient portfolio has an expected return of 14% and a volatility of 20%.Sisyphean's new project is expected to have a volatility of 40% and a 70% correlation with the efficient portfolio.The risk-free rate is 4%.
-The beta for Sisyphean's new project is closest to:
A)1.25.
B)1.40.
C)0.70.
D)1.75.

Question

Quizplus · Accepted Answer

The formula to calculate the beta of a project is:

Beta of the project = (project volatility / market volatility) x correlation with the market

In this case, the efficient portfolio represents the market. Therefore:

Beta of the project = (40% / 20%) x 0.70 = 1.40

Therefore, the closest choice is B.

Use the Information for the Question(s)below