You are considerng entening the film industry To make this decisio Suppose the n

Question

You are considerng entening the film industry To make this decisio Suppose the nsk-free interest rate is 5.0 percent and the stock market's expected return is 14 00 First, what is the asset beta tor producers of fim n this example? Beta is Encer anum enc response rounded to two decinarpaces) in turn,the discount rate that you should use is R-percent n, you nee d to know the appropriate discount rate to use in calculating the net present value af the investment percent. Aiso suppose that if the stock markets vakue nises by 1 percent, te stock value for a producer of fim typicaty rises by o 8 peroent

Explanation / Answer

Beta = .8

Market beta = 1

stock beta = .8

Asset beta = 0.8

Discount rate or required rate of return =risk free rate+(market return-risk free rate)*beta

5+(14-5)*.8

Required rate of return = 5+7.2 = 12.2%

Discount rate = 12.2%

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