1.

The average annual return on an Index from 1986 to 1995 was 14.70 percent. The average annual T-bill yield during the same period was 5.00 percent.

What was the market risk premium during these ten years? (Round your answer to 2 decimal place.)

Average market risk premium

%

2. Following are three economic states, their likelihoods, and the potential returns:

Economic State		Probability		Return
Fast growth		0.24		33	%
Slow growth		0.49		15
Recession		0.27		38

Determine the standard deviation of the expected return. (Do not round intermediate calculations and round your answer to 2 decimal places.)

3. Suppose the NASDAQ stock market bubble peaked at 5,490 in 2000. Two and a half years later it had fallen to 1,395. What was the percentage decline? (Negative answer should be indicated with a minus sign. Round your answer to 2 decimal places.)

Market decline

%

4. A manager believes his firm will earn a 13.20 percent return next year. His firm has a beta of 1.34, the expected return on the market is 11.20 percent, and the risk-free rate is 2.20 percent.

Compute the return the firm should earn given its level of risk. (Round your answer to 2 decimal places.)

Required return