2. An investment company try to acquire home mortgages based on different economic conditions applied to the coming year as below; State of the Economy Probability Fund Return Rapid expansion and 100% recovery Modest growth 30% 35% Continued recession 55% 5% Falls into depression 10% -100% 5% a. Base on the potential outcome, what is your estimate of the expectation rate of return form this investment opportunity? (10 Marks) b. Would you be interested in making such an investment? (Note that you lose all your money in 1 year if the economic collapses into the worst state but you double your money if the economy enters into rapid expansion (10 Marks) 3. Solarpower Systems expects to earn $20 per share this year and intends to pay out $8 in dividends to shareholders and retain $12 to invest in new projects with an expected return on equity of 20%. In the future, Solarpower expects to maintain the same dividend payout ratio, expects to earn a 20% return on its equity invested in new projects, and will not be changing the number of shares of the common stock outstanding. a. What is the future growth rate of Solarpower's earing? (10 Marks) b. If the investor's required rate of return for Solarpower's stock is 15%, what is the price of Solarpower's common stock? (10 Marks)