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You plan to invest in the Kish Hedge Fund, which has total capital of $500 million invested in five stocks:

Stock	Investment	Stock's Beta Coefficient
A	$160 million	0.5
B	120 million	1.3
C	80 million	2.0
D	80 million	1.0
E	60 million	1.8

Kish's beta coefficient can be found as a weighted average of its stocks' betas. The risk-free rate is 5%, and you believe the following probability distribution for future market returns is realistic:

Probability	Market Return
0.1	-26	%
0.2	0
0.4	14
0.2	28
0.1	51

What is the equation for the Security Market Line (SML)? (Hint: First determine the expected market return.)

A. r_i = 5.3% + (9.5%)b_i

B. r_i = 5.0% + (8.7%)b_i

C. r_i = 3.4% + (7.9%)b_i

D. r_i = 5.0% + (9.5%)b_i

E. r_i = 5.3% + (8.7%)b_i

Calculate Kish's required rate of return. Do not round intermediate calculations. Round your answer to two decimal places.

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Suppose Rick Kish, the president, receives a proposal from a company seeking new capital. The amount needed to take a position in the stock is $50 million, it has an expected return of 16%, and its estimated beta is 1.5. Should Kish invest in the new company?

The new stock _________ be purchased.

A. Should

B. Should not

At what expected rate of return should Kish be indifferent to purchasing the stock? Round your answer to two decimal places.

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