Problem 1 [6 points]:

Roenfeld Corp. believes the following probability distribution exists for its stock. What is the coefficient of variation on the company's stock? Probability Stock's State of of State Expected the Economy Occurring Return Boom 0.45 25% Normal 0.50 15% Recession 0.05 5%

Problem 2 [6 points]: A mutual fund manager has a $40 million portfolio with a beta of 1.00. The risk-free rate is 4.25%, and the market risk premium is 6.00%. The manager expects to receive an additional $60 million, which she plans to invest in additional stocks. After investing the additional funds, she wants the required and expected return of the funds to be 13.00%. What must the average beta of the new stocks be to achieve the target required rate of return?