1. Assume the economy can either be booming or in recession. The probability of a boom is 65%. If the economy is booming, a certain stock has an expected return of 20%. If the economy is in recession, the expected return of that same stock is 4%. What is the long term expected return of the stock?

2. Over the last year you observe that a certain company had a stock return of 24%, while the market had a return of 12%, and the risk-free rate was 2%. What would be your estimate of the firm's beta?

3. Assume a corporation is expecting the following cash flows in the future: $-4 million in year 1, $8 million in year 2, $21 million in year 3. After year 3, the cash flows are expected to grow at a rate of 4% forever. The discount rate is 12%, the firm has debt totaling $39 million, and 10 million shares outstanding. What should be the price per share for this company?

4. Stock A has a beta of 1.4, and stock B has a beta of 1.2. You invest 0.8% of your capital in stock A, and the rest in stock B. What is the beta of the resulting portfolio?

5. As with most bonds, consider a bond with a face value of $1,000. The bond's maturity is 19 years, the coupon rate is 5% paid semiannually, and the discount rate is 17%.

What is the estimated value of this bond today?

6. As with most bonds, consider a bond with a face value of $1,000. The bond's maturity is 16 years, the coupon rate is 8% paid annually, and the discount rate is 13%.

What is this bond's coupon payment?