$1)$ You have chosen biology as your college major because you would like to be a medical doctor. However, you find that the probability of being accepted to medical school is about $10$ percent. If you are accepted to medical school, then your starting salary when you graduate will be $$200,000$ per year. However, if you are not accepted, then you would choose to work in a zoo, where you will earn $$40,000$ per year. Without considering the additional years you would spend in school if you study medicine or the time value of money.

Problem $7\mathrm{.}03$ a$1-$a$2($a$1)$

What is your expected starting salary?

Expected starting salary $56,000$ then

What is the standard deviation of that starting salary?

Standard deviation $=?$

$2)$ You have just invested in a portfolio of three stocks. The amount of money that you invested in each stock and its beta are summarized below.

Stock Investment Beta

A $$222,0001\mathrm{.}40$

B $333,0000\mathrm{.}60$

C $555,0001\mathrm{.}30$

Calculate the beta of the portfolio and use the Capital Asset Pricing Model $($CAPM$)$ to compute the expected rate of return for the portfolio. Assume that the expected rate of return on the market is $12$ percent and that the risk$-$free rate is $7$ percent. $($Round beta answer to $3$ decimal places, e$.$g$.52\mathrm{.}750$ and expected rate of return answer to $2$ decimal places, e$.$g$.52\mathrm{.}75\%.)$

Expected rate of return is $12\mathrm{.}55$ then what is

Beta of the portfolio $=?$

$3)$ You know that the price of Sheridan, Inc., stock will be $$25$ exactly one year from today. Today the price of the stock is $$24.$ Determine what must happen to the price of Sheridan, Inc., today in order for an investor to generate a $25$ percent return over the next year.

Assume that Sheridan does not pay dividends.

The price should drop to $