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What would expect to happen to the investment return

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Reference no: EM132527959

Alfa Ltd currently under consideration is an investment with a beta, b, of 1.5. Currently, the risk-free rate of return RF, is 3%, and the return on the market portfolio of assets rm is 10%. You believe this investment will earn an annual rate of return of 11%.

Question 1: If the return on the market portfolio were to increase by 10%, what would you expect to happen to the investment's return? What if the market return were to decline by 10%.

Question 2: Use the capital asset pricing model (CAPM) to find the required return on this investment.

Question 3: Based on your calculation in part b, would you recommend this investment? Why or why not?

Reference no: EM132527959

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