1) Electro Inc. has a beta of 1.8, Flowers Galore has a beta of 0.9, the average return in the market is 12%, and the risk-free rate of return is 4.0%. By how much does the expected (or required) return on the riskier stock exceed the expected (or required) return on the less risky stock?
2) Stock A has a beta of 1.10, a market return of 14% and a risk-free rate of return of 6%, find the expected (or required) rate of return.
3) Your portfolio has a beta of 1.12. The portfolio consists of 20 percent U.S. Treasury bills, 50 percent stock A, and 30 percent stock B. Stock A has a risk-level equivalent to that of the overall market. What is the beta of stock B?
4) What is the expected (or required) return on this portfolio?
Stock Expected Return Number of Shares Stock price
A 12% 300 $ 28
B 7% 500 $ 10
C 15% 600 $ 13
5)What is the expected (or required) return on a portfolio that is equally weighted between stocks K and L given the following information?
Returns if State Occurs
State of Economy Probability of State of Economy Stock K Stock L
Boom 25% 16% 13%
Normal 75% 12% 8%
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