1. The market portfolio's historical returns for the past three years were 13%, -2%, and 27%. Estimate the market risk premium when the risk-free rate is 3.7%.

   1. 7.47%

   2. 8.73%

   3. 7.64%

   4. 8.97%

   5. 9.14%

2. Question 12

   A project has an expected risky cash flow of $260 in year 1. The risk-free rate is 4 percent, the expected market rate of return is 16 percent, and the project's beta is 1.10 . Calculate the certainty equivalent cash flow for year 1, CEQ₁.

   [Hint: ]

   1. $239.40

   2. $247.93

   3. $230.72

   4. $245.01

   5. $253.38