1)Assume that treasury bills rate is 12%, beta is 1.5 and the risk premium is 5%. Determine whether stock "A" is over or undervalued if its expected return is 25%?

2)2) (A) Calculate the expected risk and return for stock A:

Probabilityexpected return

0.15%

0.52%

?4%

B) If stock B has 5% return and 3% risk, which is better?

3)If you receive the following cash flows in the coming years

YearsSara Cash Flow

1500 $

2

31,500 $

4

51,500 $

If interest rates in the market is 10%, calculate how much each of them will have in year 0.