1. Suppose the current interest rate on U.S. Treasury bills is 6.2 percent. Ibbotson and Sinquefield found the average return on Treasury bills from 1926 through 1997 to be 3.8 percent. The average return on the common stock during the same period was 13.0 percent. Given this information, what is the current expected return on common stocks?

2. Two stocks, Koke and Pepsee, had the same prices two years ago. During the last two years, Koke’s stock price had first increased by 10 percent and then dropped by 10 percent, while Pepsee’s stock price had first dropped by 10 percent and then increased by 10 percent. Do these two stocks have the same prices today? Explain.