1. What are financial intermediaries, and what economic functions do they perform? 2. The real risk-free rate of interest is 3 percent. Inflation is expected to be 2 percent this year and 4 percent during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? What is the yield on 3-year Treasury securities? 3. Interest rates on 1-year Treasury securities are currently 5.6 percent, while 2-year Treasury securities are yielding 6 percent. If the pure expectations theory is correct, what does the market believe will be the yield on 1-year securities 1 year from now? 4. The probability distribution of a less risky expected return is more peaked than that of a riskier return. What shape would the probability distribution have for (a) completely certain returns and (b) completely uncertain returns? 5. Security A has an expected return of 7 percent, a standard deviation of expected returns of 35 percent, a correlation coefficient with the market of 0.3, and a beta coefficient of 1.5. Security B has an expected rate of return of 12 percent, a standard deviation of returns of 10 percent, a correlation with the market of 0.7, and a beta coefficient of 1.0. Which security is riskier? Why? 6. Assume that the risk-free rate is 5 percent and the market risk premium is 6 percent. What is the expected return for the overall stock market? What is the required rate of return on a stock that has a beta of 1.2? 7. Assume that the risk-free rate is 6 percent and the expected return on the market is 13 percent. What is the required rate of return on a stock that has a beta of 0.7