1.

If the expected rate of return on the market portfolio is 18% and T-bills yield 6%, what must be the beta of a stock that investors expect to return 13%?

2.

A mutual fund manager expects her portfolio to earn a rate of return of 13% this year. The beta of her portfolio is 0.9. The rate of return available on risk-free assets is 6% and you expect the rate of return on the market portfolio to be 16%.Do not round intermediate calculations. Enter your answer as a whole percent.)

What expected rate of return would you demand before you would be willing to invest in this mutual fund? (Do not round intermediate calculations. Enter your answer as a whole percent.)

3.

A share of stock with a beta of 0.69 now sells for $50. Investors expect the stock to pay a year-end dividend of $4. The T-bill rate is 6%, and the market risk premium is 9%.

a. Suppose investors believe the stock will sell for $52 at year-end. Calculate the opportunity cost of capital. Is the stock a good or bad buy? What will investors do? (Do not round intermediate calculations. Round your opportunity cost of capital calculation as a percentage rounded to 2 decimal places.)

b. At what price will the stock reach an equilibrium at which it is perceived as fairly priced today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

4.

A stock with a beta of 0.5 has an expected rate of return of 10%. If the market return this year turns out to be 9 percentage points below expectations, what is your best guess as to the rate of return on the stock? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)

5.

You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for the project are as follows:

Years	Cash Flow
0		100
1-10	+	17

On the basis of the behavior of the firms stock, you believe that the beta of the firm is 1.39. Assuming that the rate of return available on risk-free investments is 6% and that the expected rate of return on the market portfolio is 14%, what is the net present value of the project? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions of dollars rounded to 2 decimal places.)

6.

You are considering the purchase of real estate that will provide perpetual income that should average $55,000 per year. How much will you pay for the property if you believe its market risk is the same as the market portfolios? The T-bill rate is 5%, and the expected market return is 11.0%.

7.

A project under consideration has an internal rate of return of 16% and a beta of 0.5. The risk-free rate is 6%, and the expected rate of return on the market portfolio is 16%.

a. What is the required rate of return on the project? (Do not round intermediate calculations. Enter your answer as a whole percent.)

b. Should the project be accepted?

c. What is the required rate of return on the project if its beta is 1.50? (Do not round intermediate calculations. Enter your answer as a whole percent.)

d. If project's beta is 1.50, should the project be accepted?