Chapter 7

1) Considering the world economic outlook for the coming year and estimates of sales and earning for the pharmaceutical industry, you expect the rate of return for Lauren Labs common stock to range between - 20 percent and + 40 percent with the following probabilities.

Probability Possible Returns

0.10 - 0.20

0.15 - 0.05

0.20 0.10

0.25 0.15

0.20 0.20

0.10 0.40

2) Given the following market values of stocks in your portfolio and their expected rates of return, what is the expected rate of return for your common stock portfolio?

Stock Market Value ($ Mil.) E( Ri )

Disney $ 15,000 0.14

Starbucks 17,000 - 0.04

Harley Davidson 32,000 0.18

Intel 23,000 0.16

Walgreens 7,000 0.12