Use the following information to answer the question(s) below.
The risk-free rate of interest is 3% and the market risk premium is 5%.
-The overall value of Wyatt Oil (in $ millions)is closest to:
A) 7.0%
B) 8.5%
C) 10.0%
D) 14.0%

Question

Use the following information to answer the question(s) below.
  The risk-free rate of interest is 3% and the market risk premium is 5%.
-The overall value of Wyatt Oil (in $ millions)is closest to:
A) 7.0% 
B) 8.5% 
C) 10.0% 
D) 14.0%

Quizplus · Accepted Answer

C) Oil Exploration Division: r_i = r_rf + β(r_m - r_rf) = .03 + 1.4(.05) = .10 or 10.0% 11ea7e54_8c66_7966_ba34_07dd054f333e_TB1620_00 Oil Refining: r_i = r_rf + β(r_m - r_rf) = .03 + 1.1(.05) = .085 or 8.5% 11ea7e54_8c66_7967_ba34_9b978e0508c9_TB1620_00 Convenience Store; r_i = r_rf + β(r_m - r_rf) = .03 + 0.8(.05) = .07 or 7.0% 11ea7e54_8c66_a078_ba34_9fdb6a0720e5_TB1620_00 Total Value = 7,500 + 8,750 + 15,000 = $31,250

Use the Following Information to Answer the Question(s) Below