Problem 7 The risk-free rate is 6%. The expected rate of return on the stock market is 10%. What is the appropriate cost of capital for a project that has a beta of -2? Does this make economic sense?
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The CAPM formula is: $r_i = r_f + \beta_i(r_m - r_f)$ where: $r_i$ = the required rate of return on the investment $r_f$ = the risk-free rate of return $\beta_i$ = the beta of the investment $r_m$ = the expected return of the market Show more…
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