Exhibit 1.6

1. USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Assume that you hold a two-stock portfolio. You are provided with the following information on your holdings:

Stock	Shares	Price(t)	Price(t + 1)
1	15	10	12
2	25	15	16

Refer to Exhibit 1.6. Calculate the HPR for stock 2 (rounded to the nearest percent).

Group of answer choices

5%

6%

7%

8%

10%

2. CML and SML measure total risk by the standard deviation of the investment.

Group of answer choices

True

False

Exhibit 1.6 Three-Month Treasury Bill Yields and Rates of Inflation Year 3-Month T-bills (%) Rate of Inflation (%) 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 3- Month T-bills (%) 5.78 6.67 8.11 7.50 5.38 3.43 3.33 4.25 5.49 5.01 5.06 4.78 4.64 5.82 3.40 Rate of Inflation (%) 4.40 4.40 4.65 6.11 3.06 2.90 2.75 2.67 2.54 3.32 1.70 1.61 2.70 3.40 1.55 Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1.61 1.01 1.37 3.16 4.73 4.48 1.37 0.15 0.14 0.04 0.06 0.02 0.02 0.02 0.20 2.49 1.87 3.26 3.42 2.54 4.08 0.09 2.72 1.50 2.96 1.74 1.51 0.76 0.73 2.07 Source: Federal Reserve Bulletin, various issues; Economic Report of the President, various issues