1.Suppose you observe the following situation:

Security Beta Expected Return

X 1.8 22.00%

Y 1.6 20.44%

What must the risk-free rate be to ensure these two stocks are correctly priced?

2.Why is asset allocation the most important decision made by investors?

3.Rational investors always attempt to minimize their risks.Do you agree or disagree?

4.Is tax minimization one of the three primary investment objectives?If not, should this factor ever to be considered when making investment decisions?