Quantitative solutions can be used to check your work. But, you are expected to develop and show Excel formulas for these solutions. The path to the solution is where you will be evaluated.

• Problem 6-7: The formula you seek to solve this problem can be found in formula 6-15 under Section 6-7A (entitled The Security Market Line) in the textbook. In part a, you seek "beta" as the unknown. Once you have the formula set up, then you should be able to solve part b too.

(6-6) Expected Returns: Discrete Distribution The market and Stock J have the following probability distributions: IM TJ Probability 0.3 0.4 0.3 15% 9 18 20% 5 12 a. Calculate the expected rates of return for the market and Stock J. Answer fm = 13.5%; fj = 11.6%. b. Calculate the standard deviations for the market and Stock J. Answer CM = 3.85%; 0; = 6.22% (6-7) Required Rate of Return Suppose rrr = 5%, IM = 10%, and ra = 12%. a. Calculate Stock A's beta. Answer bA = 1.40. b. If Stock A's beta were 2.0, then what would be A's new required rate of return? Answer TA =15%