Pixi,Inc is adding a new line of cosmetics to the company portfolio and has the following information: the expected market return is 12%,the risk-free rate is 4%,and the expected return on the new project is 28%.What is the beta of the project?
A)1.60
B)2.70
C)3.00
D)3.90

Question

Quizplus · Accepted Answer

The beta of the project can be calculated using the Capital Asset Pricing Model (CAPM) formula: Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in the values: 28% = 4% + Beta * (12% - 4%). Solving for Beta gives Beta = 3.00.

Pixi,Inc Is Adding a New Line of Cosmetics to the Company