FFC Portfolio Average monthly returns are a follows:Factor PortfolioAverage monthly returnsMkt-r_fSMBHMLPR1YRYou are considering making an investment in a project in the fast food industry and you believe that the project has the same level of non-diversifiable risk as investing in McDonald's stock. Your estimate of the four factor betas are:FactorMktSMBHMLPR1YRAverage Monthly Returns0.610.250.380.70Using these estimates, and the fact that the monthly risk-free rate is 0.125%, what is your cost of capital?O The annual cost of capital of the investment opportunity is 5.95%O The annual cost of capital of the investment opportunity is 1.50%Beta estimate0.687-0.725-0.561-0.068

To calculate expected return or cost of capital, CAPM is widely used according to which Re = Rf +…

FFC Portfolio Average monthly returns are a follows: Factor PortfolioAverage monthly returns Mkt-r_f SMB HML PR1YR Factor Mkt SMB HML PR1YR Average Monthly Returns 0.61 0.25 You are considering making an investment in a project in the fast food industry and you believe that the project has the same level of non-diversifiable risk as investing in McDonald's stock. Your estimate of the four factor betas are: Using these estimates, and the fact that the monthly risk-free rate is 0.125%, what is your cost of capital? O The annual cost of capital of the investment opportunity is 5.95% The annual cost of capital of the investment opportunity is 1.50% 0.38 0.70 Beta estimate 0.687 -0.725 -0.561 -0.068

FFC Portfolio Average monthly returns are a follows: Factor PortfolioAverage monthly returns Mkt-r_f SMB HML PR1YR Factor Mkt SMB HML PR1YR Average Monthly Returns 0.61 0.25 You are considering making an investment in a project in the fast food industry and you believe that the project has the same level of non-diversifiable risk as investing in McDonald's stock. Your estimate of the four factor betas are: Using these estimates, and the fact that the monthly risk-free rate is 0.125%, what is your cost of capital? O The annual cost of capital of the investment opportunity is 5.95% The annual cost of capital of the investment opportunity is 1.50% 0.38 0.70 Beta estimate 0.687 -0.725 -0.561 -0.068

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter3: Risk And Return: Part Ii

Section: Chapter Questions

Problem 2P: APT An analyst has modeled the stock of Crisp Trucking using a two-factor APT model. The risk-free...

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APT An analyst has modeled the stock of Crisp Trucking using a two-factor APT model. The risk-free rate is 6%, the expected return on the first factor (r1) is 12%, and the expected return on the second factor (r2) is 8%. If bi1 = 0.7 and bi2 = 0.9, what is Crisp’s required return?
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