7. Springfield rifle company has a beta of 1.5 (it appears their stock is almost as risky as their product). If the risk-free rate is 4% and the expected return on the market portfolio is 12%, what is the expected return for Springfield?

a) 15.5%

b) 16.0%

c) 18.5%

d) There is not enough information to answer the question.

1. As investor who makes decision based on expected return and risk as measure by the range of possible outcomes is faced with the following alternatives:

Investment L has an expected return of 10% with a range of possible outcomes from -20% to 20%. Investment H has an expected return of 10% with a range possible outcomes from -25% to 20%. Which is a better choice?

a. Investment L.

b. Investment H.

c. Indifferent, the expected returns are identical.

d. Not enough information to answer this question.

5.

Portfolio P consists of equal amounts of securities A, B, and C. Security A has beta of 1.5, security B has a beta of 2.5, and security C has a beta of 0.5. Which security has the lowest expected rate of return?

A b) B c) C d) P