1. Explain briefly how currency risk adjustment can be done in foreign project valuation (aka multinational capital budgeting) and importance of such exchange risk adjustment and its benefits for multinational financial-managers.
2. Carolina Insurance Company, an all-equity life insurance firm, is considering the purchase of a fire insurance company. The fire insurance company is expected to generate a return of 20 percent with a beta of 2.5. If the risk-free rate is 8 percent and the market risk premium is 6 percent, the expected return from the insurance company is _____.
(a) 23%
(b) 8%
(c) 14%
(d) 10%
(e) 29%