Answer the following questions

1. Expected return

A stockâ€™s returns have the following distribution:

Demand for the Probability of This Rate of Return
Weak 0.1 (50%)
Below average 0.2 (5)
Average 0.4 16
Above Average 0.2 25
Strong 0.1 60

Calculate the stockâ€™s expected return, standard deviation, and coefficient of variation.

Required rate of return
Assume that the risk-free rate is 6 percent and the expected return on the market is 13 percent. What is the required rate of return on a stock with a beta of 0.7?

2. Beta and required rate of return

A stock has a required return of 11 percent; the riskfree rate is 7 percent; and the market risk premium is 4 percent.
What is the stockâ€™s beta?

If the market risk premium is creased to 6 percent, what would happen to the stockâ€™s required rate of return? Assume the risk-free rate and the beta remain unchanged.

3. Portfolio required return

Suppose you are the money manager of a $4 million investment fund. The fund consists of 4 stocks with the following investments and betas:

Stock Investment Beta

A $400,000 1.50
B 600,000 (0.50)
C 1,000,000 1.25
D 2,000,000 0.75

If the marketâ€™s required rate of return is 4 percent and the risk-free rate is 6 percent, what is the fundâ€™s required rate of return?

4. Burner Aeronautics has perpetual preferred stock outstanding with a par value of $100. The stock pays a quarterly dividend of $2, and its current price is $80.

a. What is its nominal annual rate of return?
b. What is its effective annual rate of return?

Answer the following questions 1. Expected return A stockâ€™...