CFA Practice Question

There are 151 practice questions for this study session.

CFA Practice Question

HR Co. has a beta equal to 1.2. It is considering investing in an average-risk project. The risk-free rate is equal to 7 percent, and the market expected return is 12 percent. What is the cost of capital of the project?

A. 7 percent
B. 12 percent
C. 13 percent.
Correct Answer: C

Since the project is an average-risk project, its beta equals the beta of the firm. Then the cost of capital can be calculated from the SML equation: 7 + 1.2 (12 - 7) = 13 percent.

User Contributed Comments 1

User Comment
Will1868 Just memorize the damn CAPM! k = Rf + Beta(Rm-Rf)
You need to log in first to add your comment.