6.

Stock A has an expected return of 12% and a beta of 1.2. Stock B has an expected return of 9% and a beta of 0.8. Both stocks have the same reward-to-risk ratio. What is the risk-free rate?

	a.	4.5%
	b.	3.0%
	c.	3.5%
	d.	4.0%
	e.	2.5%

7.

You own a stock that has an expected return of 13.6% and a beta of 1.3. The U.S. Treasury bill is yielding 4.2% and the inflation rate is 3.8%. What is the expected rate of return on the market?

	a.	9.74%
	b.	10.67%
	c.	11.43%
	d.	10.87%
	e.	9.80%

8.

Given the following information, what is the standard deviation for this stock?

Probability

State of of State of Rate of

Economy Economy Return

Boom 0.05 0.15

Normal 0.65 0.08

Recession 0.30 -0.05

	a.	6.87%
	b.	5.98%
	c.	6.37%
	d.	5.84%
	e.	6.03%

9.

The stock of Kramer's Machine Shop has an expected return of 3.3%. Given the information below, what is the expected return on this stock if the economy booms?

Probability

State of of State of Rate of

Economy Economy Return

Recession 0.35 -0.04

Normal 0.60 0.07

Boom 0.05 ?

	a.	8.6%
	b.	10.0%
	c.	10.69%
	d.	10.48%
	e.	9.2%

10.

You have a portfolio comprised of the following. What is your portfolio beta?

Stock Value Beta

A $2,500 1.2

B $3,200 0.7

C $4,800 1.6

D $4,500 1.1

	a.	1.36
	b.	1.34
	c.	1.27
	d.	1.41
	e.	1.19