Q1) Calculate the expected return on the stock of Dull Saw Corporation. The beta is estimated to be 0.7, the market risk premium is 9.6% and the risk-free rate is 4%.

Q2) What is the profitability index for an investment with the following cash flows given a 10% required return?

Year Cash Flow

0 -$22,500

1 $ 8,400

2 $ 9,700

3 $ 9,900

Q3)

What is the (a) expected return and (b) standard deviation of the returns on a stock given the following information? (6 points)

State of Probability of Rate of Return

Economy State of Economy if State Occurs

Boom 10% 16%

Normal 60% 11%

Recession 30% -8%