1. Suppose you are the money manager of a $10 million investment fund. The fund consists of 2 stocks with the following investment and betas. Assume that the CAPM holds, and k_RF=6%, k_M=14%.

   Stock	Investment	Beta
   A	$ 4 million	1.2
   B	$ 6 million	1.4

   What is the expected return of the fund?

   		13.14%
   		14.42%
   		15.87%
   		16.56%
   		17.79%

1. The total annual returns on common stocks averaged 12.2% from 1926 to 1994, small company stocks averaged 17.4%, long-term government bonds averaged 5.2%, while Treasury Bills averaged 3.7%. What was the average risk premium earned by long-term Government Bonds, and small company stocks respectively?

   		8.5%; 1.5%
   		0; 12.2%
   		1.5%; 13.7%
   		1.5%; 7.0%
   		7.0%; 5.2%

Money that the firm has already spent or is committed to spend regardless of whether a project is taken is called a(n)

1. 		sunk cost.
   		opportunity cost.
   		erosion cost.
   		fixed cost.
   		irrational cost.

1. The prices for IMB over the last 3 years are given below. Assuming no dividends were paid, what was the 3-year holding period return?

   Year Price

   0 $ 70

   1 64

   2 68

   3 80

   		17.65%.
   		5.11%.
   		14.29%.
   		-8.57%.
   		10.50%.

1. A stock with a beta of zero would be expected to:

   		have a rate of return equal to the risk-free rate.
   		have a rate of return equal to the market rate.
   		have a rate of return equal to zero.
   		have a rate of return equal to the one.
   		have a negative return when the market is up.