PROBLEMS Easy Problems 8-1 EXPECTED RETURN A stock's returns have the following distribution: 1-5 Demand for the Probability of this Rate of Return if This Company's Products Demand Occurring Demand Occurs Weak (50%) Below average 0.2 (5) Average Above average 25 Strong 0.1 60 1.0 0.1 0.4 16 0.2 Calculate the stock's expected return, standard deviation, and coefficient of variation. 8-2 PORTFOLIO BETA An individual has $35,000 invested in a stock with a beta of 0.8 and another $40,000 invested in a stock with a beta of 1.4. If these are the only two investments in her portfolio, what is her portfolio's beta? 8-3 REQUIRED RATE OF RETURN Assume that the risk-free rate is 6% and the required return on the market is 13%. What is the required rate of return on a stock with a beta of 0.72 8-4 EXPECTED AND REQUIRED RATES OF RETURN Assume that the risk-free rate is 5% and the market risk premium is 6%. What is the required return for the overall stock market? What is the required rate of return on a stock with a beta of 1.2