A. M &M Micro Processors Ltd is in process of purchasing a high-tech Equipment for its production of microchips for the electronic industry. In its search, it has gathered the following information about two possible Equipment A and B. Both Equipment will be able to provide benefits over a ten-year period, and each required an investment of $10 000. Management has constructed the following table of estimates of rate of return and probabilities for Pessimistic, most likely and optimistic results.

Equipment A Equipment B State of nature Rate of Return Probability Rate of Return Probability Recession 11% 0.30 9% 0.30 Normal 18% 0.45 18% 0.45 Boom 22% 0.25 25% 0.25

Required: i. Compute the expected rate of return for each Equipment ii. Compute the variance and standard deviation of the rate of return for each Equipment iii. Coefficient of variation for each Equipment iv. Recommend which Equipment the firm should purchase B. The firm wishes to estimate the beta of a portfolio that consists of two assets X and Y. The investment manager of the firm has gathered the following information on the two assets. Securities Rate of Return Standard Deviation Beta X 20% 20% 1.5 Y 10% 30% 1.0 Risk free asset 5% Table 2.

Calculate: i. the beta of the portfolio if 75% of the funds are invested in Y and 25% in X ii. the portfolio expected return and the portfolio beta if you invest 35 % in X, 45% in Y, and 20 percent in the risk-free asset iii. Assuming the CAPM applies, if the market's expected return is 13 percent, the riskfree rate is 8 percent, and stock X's required rate of return is 16 percent, what is the stock's beta coefficient?