1. You are given the following information for Wine and Cork Enterprises (WCE):

rRF = 3%; rM = 8%; RPM = 5%, and beta = 1

What is WCE's required rate of return? Round your answer to 2 decimal places. Do not round intermediate calculations. %

If inflation increases by 2% but there is no change in investors' risk aversion, what is WCE's required rate of return now? Round your answer to two decimal places. Do not round intermediate calculations. %

Assume now that there is no change in inflation, but risk aversion increases by 1%. What is WCE's required rate of return now? Round your answer to two decimal places. Do not round intermediate calculations. %

If inflation increases by 2% and risk aversion increases by 1%, what is WCE's required rate of return now? Round your answer to two decimal places. Do not round intermediate calculations. %

2.Suppose you are the money manager of a $5.17 million investment fund. The fund consists of four stocks with the following investments and betas:

Stock	Investment	Beta
A	$ 480,000	1.50
B	760,000	(0.50)
C	1,380,000	1.25
D	2,550,000	0.75

If the market's required rate of return is 9% and the risk-free rate is 4%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places.

3.

Stocks A and B have the following probability distributions of expected future returns:

Probability	A	B
0.1	(10%)	(32%)
0.3	6	0
0.3	15	18
0.2	24	29
0.1	34	49

Calculate the expected rate of return, rB, for Stock B (rA = 13.50%.) Do not round intermediate calculations. Round your answer to two decimal places. %

Calculate the standard deviation of expected returns, A, for Stock A (B = 21.01%.) Do not round intermediate calculations. Round your answer to two decimal places. %

Now calculate the coefficient of variation for Stock B. Round your answer to two decimal places.

a.Is it possible that most investors might regard Stock B as being less risky than Stock A?

b.If Stock B is more highly correlated with the market than A, then it might have a lower beta than Stock A, and hence be less risky in a portfolio sense.

c.If Stock B is more highly correlated with the market than A, then it might have the same beta as Stock A, and hence be just as risky in a portfolio sense.

d.If Stock B is less highly correlated with the market than A, then it might have a lower beta than Stock A, and hence be less risky in a portfolio sense.

e.If Stock B is less highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be more risky in a portfolio sense.

f. If Stock B is more highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be less risky in a portfolio sense.

4. You are holding a portfolio with the following investments and betas:

Stock	Dollar investment	Beta
A	$200,000	1.25
B	100,000	1.7
C	300,000	0.65
D	400,000	-0.35
Total investment	$1,000,000

The market's required return is 9% and the risk-free rate is 5%. What is the portfolio's required return? Round your answer to 3 decimal places. Do not round intermediate calculations. %