1. You have $100,000 to invest in a portfolio containing stock X, Stock Y, and a risk-free asset. You must invest all of your money. Your goal is to create a portfolio that has an expected return of 11.22 percent and that has only 96 percent of the risk of the overall market. If X has an expected return of 15.35 percent and a beta of 1.55, Y has an expected return of 9.4 percent and a beta of .7, and the risk-free rate is 4.5 percent, how much money will you invest in Stock X? How do you interpret your answer?

2. Find the WACC. Given the following information for Huntington Power Co., find the WACC. Assume the company's tax rate is 35 percent. Debt: 5,000 6% coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 105% of par; the bonds make semiannual payments. Common stock: 175,000 shares outstanding, selling for $58 per share; the beta is 1.10. Market: 7% market risk premium and 5% risk-free rate.

3. Preferred Stock and WACC. The Saunders Investment Bank has the following financing outstanding. What is the WACC for the company? Debt: 60,000 bonds with a coupon ratre of 6% and a current price quote of 109.5' the bonds have 20 years to maturityh. 230,000 zero coupon bonds with a price quote of 17.5 and 30 years until maturity. Preferred stock; 150,000 shares of 4 % preferred stock with a current price of $79, and a par value of $100. Common stock: 2,600,000 shares of common stock; the current price is $65, and the beta of the stock is 1.15. Market: The corporate tax rate is 40%, the market risk premium is 7%, and the risk-free rate is 4%.