FI: 201 - Risk and Return Problems

Assignment 1

1. For each of the investments shown in the following table, calculate the rate of return earned over the specified time period.

Investment Cash Flow during the Period Beginning Value Ending Value

A $15,000 $120,000 $118,000

B $80 $600 $500

C $7,000 $45,000 $48,000

2. Assume that the risk-free rate is currently 9% and the market return is currently 13%.

Calculate the required return for an asset with the following beta:

Investment Beta Required Return

Asset A .8

Asset B 1.0

Asset C 1.5

Asset D 2.0