Reference no: EM132459119

1) You are considering investing in a project with the following possible outcomes: Probability of Investment States Occurrence Returns State 1: Economic boom 40% +20% State 2: Economic growth 40% 0% State 3: Economic decline 20% -10% Calculate the expected rate of return and the standard deviation of % returns for this investment?

2) Hayden Manufacturing Company's common stock has a beta of 1.4. If the expected risk-free return is 2% and the market offers a risk premium of 6%, (per the CAPM) what is the expected return on Hayden's common stock? What is the market return, based on the given information?

3. If you hold a portfolio made up of the following assets: Investment Value Asset $10,000 T-Bills (assume they are risk-free) $40,000 Stock with a beta = 1.5 $20,000 Stock with a beta = 2.0 $30,000 S&P 500 Index Fund* *Same characteristics as the "market" portfolio What is the beta of the portfolio?

4. The Cactus Co. has a beta of 2.35. The return on the market portfolio is 13%, and the risk-free rate is 7%. According to the CAPM, what is the market risk premium? What is the risk premium of Cactus' stock?

5. Wildcat's stock is expected to return 10% and have a standard deviation of returns of 20%, during the next year. Sparky's stock is expected to return 20% and have a standard deviation of returns of 30%, during the next year. You decide to form a portfolio, where 20% of the portfolio consists of Wildcat and the rest is in Sparky. If the correlation coefficient (between the two stocks' returns) is 0.2, what is the standard deviation of your portfolio's returns? If, instead, the correlation coefficient, were zero, what would be the standard deviation of your portfolio's returns?