1. An investment has a 10% chance of returning 20%, a 70% chance of returning 10%, and a 20% chance of returning nothing. What is the standard deviation of expected returns?

2. An investment has returned 5%, 3%, 4%, 6%, and 7% in each of the last five years, respectively. We have decided that we want to use historical returns as a proxy for expected future returns. What is the standard deviation of these returns?

3. Why isnt a portfolios standard deviation the same as its components?

4. The following examples of firm-specific or market risk? a. An oil company failing to find oil in one of its oil fields. b. GDP numbers beating expectations. c. The SEC finding accounting irregularities with a company.

5.How might a drop in the price of oil cause both firm-specific and market risk effects?

.6 We have $25 thousand invested in ABC stock (beta=1.5), $50 thousand in DEF stock (beta=0.7), and $15 thousand in GHI stock (beta=1.2). What is the portfolios beta?

7. Long term govt bonds are returning 4%. The equity risk premium is 5%. If XYZ stock has a beta of 0.6, what is its expected return?