Clearinghouse Publications is adding a new magazine project to the com

Clearinghouse Publications is adding a new magazine project to the company portfolio and has the following information: the expected market return is 12%, the risk-free rate is 4%, and the expected return on the new project is 20%.

What is the beta of the project?
A) 1.00
B) 1.50
C) 1.75
D) 2.00

ANSWER

Answer: D
Explanation: D) This problem requires the student to rearrange the SML equation; it is not specifically covered in the text.
Re = rf + [E(rm) – rf] β, and therefore, β = = = 2.00.