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Calculate the expected return of the new project

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Question - A) Using the expectation model of capital asset pricing model, describe and justify what the value of the beta of an Australian government bond should be.

b) Steel Robotics is considering a new investment in Brazil. Initial estimates of the investment returns have revealed the following:

Probability return

10.00% -12%

40.00% 20%

30.00% 35%

20.00% 37%

The company's board of directors has determined that the project requires a risk premium of 18% per annum. The risk-free rate is 5.5% per annum and the company has a beta coefficient of 1.0. Using the information provided in the table above, calculate the expected return of the new project and conclude if the project should or should not be undertaken.

Reference no: EM132994953

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