A project has an asset beta of 0.70. The expected return on the market is 18%, and the relevant risk-free rate is 7%. The project's required rate of return is
A)14.7%.
B)10.5%.
C)24.5%.
D)19.6%.

Question

Quizplus · Accepted Answer

The project's required rate of return can be calculated using the Capital Asset Pricing Model (CAPM):
Required Rate of Return = Risk-Free Rate + Beta x (Expected Return on the Market - Risk-Free Rate)
Required Rate of Return = 7% + 0.70 x (18% - 7%)
Required Rate of Return = 7% + 0.70 x 11%
Required Rate of Return = 7% + 7.7%
Required Rate of Return = 14.7% 
Therefore, the answer is A) 14.7%.

A Project Has an Asset Beta of 0