1. A portfolios returns are forecasted to have the following distribution:

Demand for the Prob of Demand occurring

companys products Rate of return if this demand occurs

Weak 20% -12%

Average 50% 11%

Strong 30% 17%

Calculate the expected return of the portfolio.

2. You have decided to invest $70,000 in Stock Fund, and $30,000 in Bond. The returns for each fund are forecasted below: Fill in the portfolios forecasted return for a strong economy and a weak economy. Then calculate the expected return for the portfolio.

Economy (Probalility) Stock Fund Return Bond Fund Return Portfolio Return

Strong (65%) 16% 2% ___________________

Weak (35%) -12% 7% __________________

Expected return portfolio_______________

3. Assume that the risk-free rate is 1.4% and the market risk premium is 7.5%.

What is the required return for a stock that has a beta of .8?

What is the required return for a stock that has a beta of 1.2?