Q1Given the following information about the returns of stocks A, B, and C, what is the expected return of a portfolio invested 30% in stock A, 40% in stock B, and 30% in stock C?

State of economy	Probability	Stock A	Stock B	Stock C
Boom	0.14	0.34	0.39	0.27
Good	0.23	0.11	0.12	0.1
Poor	0.2	0.05	0.08	0.06
Bust	--	-0.23	-0.21	-0.27

Enter answer in percents.

Q2/

Given the following information about a stock's return in the various states of the economy, calculate the standard deviation of its return.

State of economy	Probability	Stock return
Recession	0.19	-0.13
Normal	0.48	0.06
Boom	--	0.21

Enter the answer in percents, accurate to two decimal places.

Q3/Parole Co. has 75,384 bonds outstanding that are selling at par value. The bonds yield 8.5 percent. The company also has 4.1 million shares of common stock outstanding. The stock has a beta of 1.31 and sells for $43.4 a share. The U.S. Treasury bill is yielding 4 percent and the market risk premium is 8.9 percent. Parole's tax rate is 30 percent. What is the firm's weighted average cost of capital?

Enter the answer in percents.

Q4/GIMP Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 2 years to maturity that is quoted at 105.1 percent of face value. The issue makes annual payments and has an embedded cost (coupon rate) of 9.8 percent annually. What is the firm's pretax cost of debt? (Enter answer in percents.)