Question 1:

Suppose that you hold a two asset portfolio consisting of 100 shares of Clooney Brothers at $20 per share and 200 shares of Marx Brothers at $40 per share. Assume that you have computed the expected return on Clooney Brothers and Marx Brothers to be 8% and 12%, respectively. What is the expected return from the portfolio?

Options:

A.

10.2%

B.

11.2%

C.

12.2%

D.

13.2%

E.

14.2%

Question 2:

Taylor, Inc., stock has a beta of 1.4 and an expected return of 13.3 percent. The risk-free rate is 3.3 percent and the expected market portfolio return is 11.2%. What is the required return on this stock? And is it overvalued or undervalued?

Options:

A.	10.36% and undervalued
	B.	10.36% and overvalued
	C.	13.3% and exactly valued
	D.	14.36% and undervalued
	E.	14.36% and overvalued

Question 3:

A preferred stock pays a $5.50 annual dividend. What is the maximum price you are willing to pay for one share of this stock today if your required return is 7.5 percent? If the preferred is selling for $50 in the market, should investors acquire the stock?

Options:

A.

$33.3 and should acquire

B.

$33.3 and should not acquire

C.

$50 and should acquire

D.

$73.3 and should acquire

E.

$73.3 and should not acquire