1. Hedging refers to avoiding high-risk investment opportunities. a transaction that reduces risk exposure. the same thing as asset diversification. avoiding the financial futures market.
2. The expected return on the market portfolio is 11.7%, while treasury bills are yielding 1.8%. What expected return is predicted by the CAPM for a stock with a beta of 1? Enter answer in percents. Use excel and show formulas.
3. A firm is considering a project that will generate perpertual after-tax cash flows of 25,000 per year beginning next year. The project has the same risk as the firm's overall operations. Equity cost 15%and debt cost 6% on an after-tax basis. The firm's D/E ratio is 1.2. What is the most the firm can pay for the project and still earn its required return?