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Standford Entreprise SEL is considering tree investment projects A, B and C. Using Capital Asset Pricing Model ( CAPM). SEL collected the following information for Analysis.

Item Rate of Return Beta B
Risk Free Asset 6%
Marketable Securities 12% 1
Project A 0.8
Project B 2
Project C 0


A) Calculate the requires return and risk for each project, given its level of non diversifiable risk.

B) Use your findings in (A) to draw the security Market Line.

C) Discuss the relative systematic (non-diversifiable) risk of project A to C and rank them in terms of marks.

D) Assume the recent economic events have caused the investors to become less risk-averse, causing the market return to decline to 10% from the current 12%. Calculate the new required rate of returns for Assets A to C.

E) What conclusion can you draw about the impact of a decline in investor risk on the requires returns of risky assets?


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