Calculate the required rate of return and risk premium

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Reference no: EM132418149

Case - Toronto Financial Products

Toronto Financial Products (TFP) is considering two investment Assets A and B, using the Capital Asset pricing model. Assume the following as relevant information:

Current Risk-free rate is 9 percent.

Current Market return is 13 percent.

Item

Rate of Return

Beta

Risk-Free Rate

9%

-

Market

14%

1.00

Project A

 

1.50

Project B

 

0.75

Project C

 

0.00

Required:

1. Calculate the required rate of return and risk premium for each project, given its level of non-diversifiable risk.

2. Use your finding to draw the security market line.

3. Discuss the relative systematic (non-diversifiable) risk of project A, B and C in terms of risk.

(Hint: For SML, use the horizontal axis for (3 values and the vertical axis for the rate of returns).

Reference no: EM132418149

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