Please see attached Word doc for questions.

Problem 7-1: You have decided to invest 30 percent in X; 30 percent in Y; and 40 percent in Z. The probability of the state of the economy is Boom 25%; Normal 60%; and, Bust 15%. The rate of return for stock X is Boom .20; Normal .15; and, Bust .00. The rate of return for stock Y is Boom .35; Normal .10; and, Bust -.30. The rate of return for stock Z is Boom . 60; Normal .05; Bust -.40. A] What is the portfolio expected return? B] If the expected T-bill rate is 1.5 percent, what is the expected risk premium on the portfolio? Problem 7-2: You have been given the following information on two corporations; you are to assume that the securities are correctly priced. My Corp, Inc. has a Beta of 1.25 and an Expected Return of .145; Your Corp, Inc. has a Beta of .75 and an Expected Return of . 095. Based on the CAPM, what is the: A] expected return on the market? B] the risk-free rate? Problem 7-3: Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments. Bond A has a coupon rate of 4.0%; a price quote 104; maturity is 6 years; and the face value is $50,000. Bond B has a coupon rate of 6.5%; a price quote of 109; maturity is 9 years; and the face value is $30,000. Bond C has a coupon rate of 9.2%; a price quote of 95; maturity is 16 years; and the face value $60,000. Bond D has a coupon rate of 9.9%; a price quote of 110; maturity is 24 years; and the face value is $40,000. Problem 7-4: Your Corp, Inc.'s data is as follows: Beta; 1.30 Recent dividend; $.90 Expected dividend growth; 7% Expected return of the market; 14% Treasury Bills are yielding; 4% Most recent stock price; $65 Problem 7-4(continued) A] Using the DCF method, calculate the cost of equity. B] Using the SML method, calculate the cost of equity. C] The answers in [A] and [B] are very different. Why