Question

What is beta of Asset X if the expected return on Asset X is 14%, the expected market return is 10%, and the risk free rate is 6%? Select one: a. 1.00 b. 2.00 c. 0.67 d. 1.33

An investment project costs $20,000 and will generate $5,000 in annual cash flows for three years followed by $4,000 in annual cash flows for six years. What is the payback period?

Select one:

a. 4.67 years

b. 4.25 years

c. 4.50 years

d. 5.33 years

Answer 1

1.

Expexted return on asset = Rfr + B*(Expected market return - Rfr)

14% = 6% + B (10% - 6%)

B = 2

Ans: Option B

2. Payback period = Number of years to cover the total investment

Total investment =$20,000

Ist three years = 15,000 (5000* 3 years)

4th Year = $4000

Still we need $1000 to cover the total investment

Now Period = 1000/4000 = 0.25 year

Total year = 4.25 year

Option B

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