All returns are annual returns unless otherwise indicated. 1. What is the expected return on Asset A if it has a beta of 1.50, the expected market return is 11 percent, and the risk free rate is 5 percent? 2. The expected return on Stock Q is 15 percent, the market risk premium is 6 percent, and the risk free rate is 5 percent. Calculate the beta of Stock Q. 3. Assume that you have a portfolio consisting of the following stocks. Stock Investment ($) Expected return A $10.000 0.07 (or 7%) B 20.000 0.10 (or 10%) C 50.000 0.13 (or 13%) D 15.000 0.08 (or 8%) E 5.000 0.05 (or 5%) 4. Compute the expected return on the portfolio. You invest $300,000 in Stock X, $200,000 in Stock Y, and $500,000 in Stock Z. a) The betas for Stocks X, Y and Z are 0.90, 1.25, and 1.80, respectively. Find the beta of the portfolio. b) The risk free rate of return is 5 percent and the return on the market portfolio is 11 percent. Find the expected return on the portfolio according to the Capital Asset Pricing Model (CAPM)? 5. A firm just paid an annual dividend of $4 per share. This dividend is expected to grow at a rate of 6 percent per year forever. If the current market price for a share of the company's stock is $50. find the cost of equity (or required return on equity.) 6. Treasury bills currently have a return of 5 percent and the return on the S&P 500 is 11 percent. If a company has a beta of 1.30, what is its required return on equity (or cost of equity)? 7. Suppose a firm's capital structure consists of debt and common equity. The firm has a cost of equity of 14 percent and a pre-tax cost of debt of 8 percent. If the target debt/equity ratio is 0.60 (or 60 percent), and the tax rate is 25 percent, what is the firm's weighted average cost of capital (WACC or RWACC)?