a firm has only 2 assets on its balance sheet with the below market values...
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Finance
a firm has only 2 assets on its balance sheet with the below market values and CAPM betas. The risk free rate is 3% pa and the market risk premium is 5% pa. Assume that the CAPM is correct and all assets are fairly priced.
| Item | Market Value | Beta |
| Cash Asset | 0.5 | 0 |
| Truck Asset | 0.5 | 2 |
Which of the following is not correct?
a. if market portfolio suddenly rose by 1% when the expected market value of the cash would be unchanged
b. if the market portfolio suddenly rose by 1%, then the trucks's expected market value would rise 2% to be worth $0.01m more
c. if the market portfolio suddenly rose by 1%, then the firm's total assets' expected market value would rise 1% to be worth $0.01m more
d. The firm's total assets beta is 1 and required return on assets (or WACC before tax) is 8% pa.
e. the trucks' required return is 19% pa
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