Capital Asset Pricing Model

When working with the CAPM, which of the following factors can be determined with the most precision?A. The market risk premium (RPM)B. The beta coefficient, Bi, of a relatively safe stock.C. The most appropriate risk-free rate, rRF.D. The expected rate of return on the market, rM.E. The beta coefficient of “the market,” which is the same as the beta of an average stock.The relative risk of a proposed project is best accounted for by which of the following procedures?A. Adjusting the discount rate upward if the project is judged to have above-average risk.B. Adjusting the discount rate downward if the project is judged to have above average-risk.C. Reducing the NPV by 10% for risky projects.D. Picking a risk factor equal to the average discount rate.E. Ignoring risk because project risk cannot be measured accurately.Projects A and B are mutually exclusive and have normal cash flows. Project A has an IRR of 15% and B’s IRR is 20%. The company’s WACC is 12%, and at the rate Project A has the higher NPV. Which of the following statements is correct?A. The crossover rate for the two projects must be less than 12%.B. Assuming the timing pattern of the two projects’ cas flow is the same, Project B probably has a higher cost (and larger scale).C. Assuming the two projects have the same scale, Project B probably has a faster payback than Project A.D. The crossover rate for the two projects must be 12%.E. Since B has a higher IRR, then it must also have a higher NPV if the crossover is less than the WACC of 12%.

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