CAMP works, and you know that the expected returns on Walter and Amazon are estimated to be 12% and 10%, respectively. You have Just calculated extremely reliable estimates of the betas of Walter and Amazon to be 1. 30 and 0. 90, respectively. Given this data, what is a reasonable estimate of the risk-free rate (the return on a long-term government bond)? (No more than two decimals in the percentage return, but do not enter the % sign. ) Answer for Question 8
Question 9 (10 points) The standard deviation of a portfolio’s return is the weighted average of the standard deviations of the returns of all securities in the portfolio, where the weights are proportional to the amount of your investment in a security relative to your total investment. False. Question 10 (1 5 Points) Your own company has been very successful in producing and selling rocket engines. Given that airplane engines are not that cheap, and the airline industry is extremely sensitive to the market, the beta of your company is 2. 50.
The racket risk premium (the average/expected difference between the market return and the risk-free rate) is 4. 00% and the return on a long-term government bond is 2. 50%. You have discovered an exciting opportunity to create a new wireless device that will cover a whole state in the U. S. With one station. This project will require a $4 billion investment, spread out equally between now (t = O) and the end of this year (t = 1), and will produce $500 million dollars in perpetuity starting in year 2 (t = 2). Should you proceed with this project? Yes. Do not know. No.
