【操作風(fēng)險(xiǎn)管理與測(cè)量】FRM二級(jí)每日試題精選
A firm’s financial planning department reports that a project’s proposed risk-adjusted return on capital (RAROC) is 13 percent, the risk-free rate is 3 percent, the market return is 11 percent and the firm’s equity beta is 1.3. Use adjusted risk-adjusted return on capital (ARAROC) to determine whether or not the project should be accepted. This firm should:
- Accept the project because its expected ARAROC is higher than the market’s excess return.
- Reject the project because its expected ARAROC is lower than the market’s excess return.
- Accept the project because its expected ARAROC is lower than the market’s excess return.
- Reject the project because its expected ARAROC is higher than the market’s excess return.
Answer: B
ARAROC = (0.13 - 0.03) / 1.3 = 0.0769 = 7.69%
The project should be rejected because the ARAROC of 7.69 percent is less than the excess return on the market: 11%-3% = 8%.
