Project C has been classified into risk class II by the analyst of a major firm.

Question

Project C has been classified into risk class II by the analyst of a major firm. The risk premium required for projects in this risk class is 8%. The current risk-free rate measured by the analyst is 10%. If the project has an estimated return of 20%, the analyst would recommend a. accepting project C b. rejecting project C c. reestimating the risk premiums for class II projects d. none of the above Project C has been classified into risk class II by the analyst of a major firm. The risk premium required for projects in this risk class is 8%. The current risk-free rate measured by the analyst is 10%. If the project has an estimated return of 20%, the analyst would recommend Project C has been classified into risk class II by the analyst of a major firm. The risk premium required for projects in this risk class is 8%. The current risk-free rate measured by the analyst is 10%. If the project has an estimated return of 20%, the analyst would recommend a. accepting project C b. rejecting project C c. reestimating the risk premiums for class II projects d. none of the above a. accepting project C b. rejecting project C c. reestimating the risk premiums for class II projects d. none of the above

Explanation / Answer

a) accept the project as return (20%) > risk free+ risk premium (18%)

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