You plan to invest in the Kish Hedge Fund, which has total capital of $500 million invested in five stocks:

Stock	Investment	Stock's Beta Coefficient
A	$160 million	0.5
B	120 million	1.2
C	80 million	1.7
D	80 million	1.0
E	60 million	1.3

Kish's beta coefficient can be found as a weighted average of its stocks' betas. The risk-free rate is 6%, and you believe the following probability distribution for future market returns is realistic:

Probability	Market Return
0.1	-25	%
0.2	0
0.4	11
0.2	32
0.1	47

1. What is the equation for the Security Market Line (SML)? (Hint: First determine the expected market return.)
   1. r_i = 7.9% + (7.4%)b_i
   2. r_i = 6.0% + (8.9%)b_i
   3. r_i = 9.8% + (7.0%)b_i
   4. r_i = 9.8% + (8.9%)b_i
   5. r_i = 6.0% + (7.0%)b_i

2. Calculate Kish's required rate of return. Do not round intermediate calculations. Round your answer to two decimal places.

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3. Suppose Rick Kish, the president, receives a proposal from a company seeking new capital. The amount needed to take a position in the stock is $50 million, it has an expected return of 17%, and its estimated beta is 1.5. Should Kish invest in the new company?

   Select: should/ should not

   At what expected rate of return should Kish be indifferent to purchasing the stock? Round your answer to two decimal places.

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