1. If you have $30,000 invested in each of two stocks whose expected rates of return are 9% and 11% respectively, and $20,000 invested in each of another three stocks whose expected returns are 10%, 12% and 14%, what is the expected return on your portfolio? (3 pts.)

2. If the betas on the stocks above are 0.8, 1.1, 1.0, 1.2 and 1.4, respectively, what is the beta of your portfolio, and what is the required return on the portfolio if the risk free rate is 4.6% and the return on the market portfolio is 10.4%? (4 pts.)

3. The return on the Verschelde Corp. has the following return distribution:

Prob.Return

.10-10%

.15-0%

.208%

.2512%

.2018%

.1024%

Calculate the expected return and standard deviation for Verschelde. (7 pts.)

4. Discuss the problems that can occur when someone uses beta to measure a stocks risk and required return. Please be specific. (3 pts.)

5. What exactly do we mean when we say that a stock is fairly priced? Again, please be specific. (3 pts.)