11. The internal rate of return on a project is 11.24%. Choose the TRUE state-

ment(s) if the project has a Required Rate of Return (RRR) of 9.5%? (Cash

ows are conventional.)

I. Both NPV > 0 and IRR > RRR

II. IRR > RRR.

III. NPV > 0.

IV. IRR > RRR but there is not enough information to determine if

NPV > 0 or if NPV < 0.

(a) I, II and III are the only true statements.

(b) II and IV are the only true statements.

(c) II is the only true statement.

(d) IV is the only true statement.

(e) All of the statements are true.

13. Suppose you observe the following situation: Beta Expected Return Pete Corp. 1.3 24% Repeat Corp 0.65 13% Assume these securities are correctly priced. Based on the CAPM, what is the market risk premium? (a) 14.9% (b) 2.9% (c) 16.9% (d) 4.9% (e) 17.9% The following is for problems 13-15. A stock has a beta of 1.3 and an expected return of 17%. The market portfolio currently earns 12%.

14. What is the expected return on a portfolio that is equally invested in the two assets? (The stock and the market portfolio). (a) 14.5% (b) 13.5% (c) 12% (d) 17% (e) 16.5%

15. If a portfolio of the two assets has a beta of 0.80 what is the portfolio weights on the stock? (a) 2/3 (b) -2/3 (c) 1/3 (d) 23/45 (e) -23/45 4

16. If a portfolio of the two assets has an expected return of 10% what is it's beta? (If you _nd a negative risk-free rate you are on the right track) (a) 0.78 (b) 0.88 (c) 1.08 (d) 1.18 (e) 3.54

17. Analyzing a Portfolio. You have to invest in a portfolio containing Stock X, Stock Y, and a risk free asset. You must invest all of you money. Your goal is to create a portfolio that has an expected return of 13% and that has only 80% of the risk of the overall market. If X has an expected return of 31% and a beta of 1.8. Y has an expected return of 20% and a beta of 1.3 and the risk free rate is 7%, what is the portfolio weight on X? (a) 2/3 (b) -2/3 (c) 2/6 (d) -2/6 (e) -0.237