The risk free rate of return is 1.8% and the expected return on the market portfolio is 8.35%. Given the following possible returns for Lidar Limited and the S&P/TSX Composite Index(found in Table 1.1):

a.Calculate the expected return for Lidar (illustrate your solution using MS Equation Editor).

b.Calculate the expected return, variance and standard deviation for the S&P/TSX Composite Index(illustrate your solution using an embedded Excel Spreadsheet).

c.Using an embedded Excel Spreadsheet, calculate the Covariance and Correlation Coefficient between Lidars returns and the market index returns.

d.Calculate the Ex Ante Beta Coefficient for Lidar. Illustrate the formula and your calculations using MS Equation.

e.Is Lidar an aggressive or defensive investment? Explain.

f.Calculate the required rate of return on Lidar stock.

g.Is Lidar over priced, under priced or fairly valued? Explain.

Table 1.1 - Forecast Possible Returns on Lidar Corp. and S&P/TSXPossible

Returns on S&P/TSX

Possible Returns Composite

State Probability on Lidar Corp Index

Economic Boom 25% 47% 18%

Moderate Growth 30% 23% 11%

Normal 25% 90% 7%

Recession 20% -45% -6%