Question: #1) If CAPM is valid, is the following situation possible? Explain your answer. Portfolio A: Expected Return = 20%, Standard Deviation = 35%; Portfolio B:

#1) If CAPM is valid, is the following situation possible? Explain your answer. Portfolio A: Expected Return = 20%, Standard Deviation = 35%; Portfolio B: Expected Return = 40%, Standard Deviation = 25%

Answer 1:

#2) Garden Co. has an ROE of 12%, expects earnings (E1) of $4 per share and expects to pay dividends (D1) of $1.00 per share. Its market cap rate (k) is 12%. What are its expected (or sustainable) growth rate, its price, and its P/E ratio?

Answer 2:

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