70.2K

Verified Solution

Link Copied!

.45 The return on a risk-free investment is 3% and the expected return E[RM] on the market portfolio is 9%. The annualized standard deviation of the return on the market is 15%. Assume that the information concerning expected internal rate of return, standard deviation and the correlation coefficient with the market of two prospective projects are as follows: Projects IRR SD(R) Corr(R RM 1 7% .25 2 11% .30 .90 Find the security market line (SML) and graph it. b. Find the index of systematic risk (B) of each project and plot the (IRR, B) combinations on your graph. Rank the projects according to a measure of their total risk and then their index of systematic risk, B. Explain any difference between the two sets of rankings. a. c. .45 The return on a risk-free investment is 3% and the expected return E[RM] on the market portfolio is 9%. The annualized standard deviation of the return on the market is 15%. Assume that the information concerning expected internal rate of return, standard deviation and the correlation coefficient with the market of two prospective projects are as follows: Projects IRR SD(R) Corr(R RM 1 7% .25 2 11% .30 .90 Find the security market line (SML) and graph it. b. Find the index of systematic risk (B) of each project and plot the (IRR, B) combinations on your graph. Rank the projects according to a measure of their total risk and then their index of systematic risk, B. Explain any difference between the two sets of rankings. a. c

Answer & Explanation Solved by verified expert

See Answer