1- Assume both portfolios A and B are well diversified; that the expected rate of return of A is 14% and expected rate of return of B is 14.8%. If the beta of A is 1.0 and beta of B is 1.1, what must be the risk free rate?

Question options:

6.5%

6.0%

5.5%

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2- Stock A has a current price of $25.00, a beta of 1.25, and a dividend yield of 6%. If the Treasury bill yield is 5% and the market portfolio is expected to return 16%, what should Stock A sell for at the end of an investors two year investment horizon? (Hint: Solve for the growth rate using the Gordon Growth Model).

Question options:

$31.00

$31.78

$32.15

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3- HMTV has planned on diversifying into the dual-PVR field. As a result, HMTVs beta would rise to 1.6 from 1.2 and the expected future long-term growth rate in the firms earnings would increase from 12% to 16%. The expected market return is 14%; the risk-free rate is 7%, and the current dividend is $0.50. Should HMTV undertake the expansion?

Question options:

	Yes, the stock price is expected to increase $9.89
	No, the stock price is expected to decrease $3.38
	No, the stock price is expected to decrease $8.28