1. Four possible investments and their anticipated returns are

Savings account 2%

Corporate debt 6

Corporate equities 8

Risky derivatives 15

For an elderly relative, you believe the correct asset allocation is 20 percent in the savings account, 50 percent in corporate debt, 30 percent in equities, and nothing in the risky derivatives. You, however, are willing to bear more risk and believe your asset allocation should be 5 percent in the savings account, 30 percent in corporate debt, 50 percent in equities, and 15 percent in the risky derivatives. What are the expected returns for both allocations?

2. You are considering purchasing a stock. In a growing economy, the potential return is 20 percent, but if the economy stagnates, the potential return is only 7 percent. In the case of a recession, you could sustain a loss since the anticipated return is 28 percent. The probability of economic growth is 60 percent, while the probability of stagnation and recession are 30 percent and 10 percent respectively. What is the expected return on this investment?
3. You anticipate the market will rise by 9.3 percent and may earn a risk-free rate of 1.4 percent. Stock A is a relatively safe security with a beta of 0.65, but stock B is con-siderably more volatile with a beta of 1.9. What is the required return for each stock? If 30 percent of the portfolio is invested in stock A and the remainder in stock B, what is the beta coefficient of the portfolio