Assignment Case Scenario: Toronto Financial Product
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
|
|
Project A
|
|
1.5
|
|
Project B
|
|
0.75
|
|
Project C
|
|
0
|
Required:
Problem 1: Calculate the required rate of return and risk premium for each project, given its level of non-diversifiable risk.
Problem 2: Use your finding to draw the security market line.
Problem 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).
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