1. a) The following is adapted from Financial Management for Executives (2nd ed.): Use a capital asset pricing model (CAPM) to calculate the expected return on a stock that has a beta of 2.5 if the risk-free rate is 3 percent and the market portfolio is expected to pay 11 percent.

b) The following is adapted from Financial Management for Executives (2nd ed.): Acme Inc. is financed one third with debt and two thirds with equity. Acmes expected return on equity is 12 percent and its expected return on debt is 6 percent. Acme has a corporate tax rate of 33 percent. Calculate Acmes weighted average cost of capital (WACC)