A group of investors is considering starting a firm. The joint distribution of the internal rate of return (IRR) for starting the firm Rj and the market portfolio return Rm is assumed to be as follows:
|
Rj |
20% |
10% |
R 5% |
|
30% |
1/8 |
1/16 |
1/16 |
|
15% |
1/16 |
¼ |
0 |
|
0% |
1/8 |
1/16 |
1/4 |
- What is the expected return for the market and for the firm?
- What is the beta for the firm?
- Should the investor group start assuming that the distribution above is correct and the risk-free interest rate is 5%?