# Suppose that a foreign project has a beta of 1.12, the risk

Suppose that a foreign project has a beta of 1.12, the risk free return is 9.3% and the required return on the market is estimated at 18%. Then the cost of capital for the project is

A) 17.21%

B) 21.37%

C) 19.04%

D) 20.03%

Suppose that the current 90 day London interbank offer rate is 11% (all rates are stated on an annualized basis. If next period's LIBOR is 10.5%, then a Eurodollar rate priced at LIBOR plus 1% will cost

A) 12% this period and 11.5% next period

B) 11% this period and 10.5% next period

C) 12% this period and 12% next period

D.) 11% this period and 11% next period

Assume the bid rate of an Australian dollar is $.60 while the ask rate is $.61 at Bank Q. Assume the bid rate of an Australian dollar is $.62 while the ask rate is $.625 at Bank V. Given this information, what would be your gain if you use $1,000,000 and execute locational arbitrage? That is, how much will you end up with over and above the $1,000,000 you started with?

A) $10,003.

B) $12,063.

C) $14,441.

D) $16,393.

E) $18,219.

https://brainmass.com/business/beta-and-required-return-of-a-project/suppose-that-a-foreign-project-has-a-beta-of-1-12-the-risk-218262

#### Solution Preview

Suppose that a foreign project has a beta of 1.12, the risk free return is 9.3% and the required return on the market is estimated at 18%. Then the cost of capital for the project is

A) 17.21%

B) 21.37%

C) 19.04%

D) 20.03%

Answer: C

Cost of capital = risk free rate + beta(required return on the market - risk free rate)

= 9.3% + 1.12(18% - 9.3%) = 19.04%

Suppose that the current 90 day London interbank offer rate is 11% (all rates ...

#### Solution Summary

This solution is comprised of a detailed explanation to answer what is the cost of capital, LIBOR rate, and how much will you end up with over and above the $1,000,000 you started with.