Compare the corporate risk of Projects A and B
Question: A. Compare the corporate risk of Projects A and B….
- Compare the corporate risk of Projects A and B. (Hint: Use the expected returns in Exhibit 13.1 to create a graph with corporate characteristic lines for Projects A and B. Regression lines can be created using the =INTERCEPT and =SLOPE functions in Excel. The XY (Scatter) chart in Excel is recommended.)
- What would happen to the overall risk of MS I if it invests in Project A? Project B?
Investment
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State of 1-year S&P 500 Equity in
The Economy probability T-Bill Project A Project B Fund MSI
Poor 0.1 7% -8% 18% -15% 0%
Below average 0.2 7% 2% 23% 0% 5%
Average 0.4 7% 14% 7% 15% 10%
Above average 0.2 7% 25% -3% 30% 15%
Excellent 0.1 7% 33% 2% 45% 20%