Question: 2. Data: Rz = 14.5%; rf = 2%; and oz = 4% a. Compute the expected rates of return and levels of risk for the

2. Data: Rz = 14.5%; rf = 2%; and oz = 4% a. Compute the expected rates of return and levels of risk for the Capital Allocation Line (CAL) using values of (i) y = 0 (3 points) (ii) y = 0.5 (3 points) (ii) y = 1.0 (3 points) (iv) y = 2.0 (3 points) b. In a(iv) is leverage being used? What are the two outcomes of leverage? (6 points) Note: Answer in terms of risk and return. C. What is the correlation between Z and F? (2 points) d. In a(iv) where y = 2, what is the initial margin value if margin trading is used? (5 points)1. Data: Risk & Return: Be = 1.25; ry = 2%; and RM = 12%. Cash Flows: g = 5% and is constant; the last dividend paid was Do = $2.00 a. If the current price of stock Q is Po = $22.105, find the actual rate of return on stock Q. Note: Q is a constant growth stock. (8 points) b. Find the equilibrium rate of return for stock Q. (6 points) C. (i) Combine M and F so that its beta is identical to Q. Show the level of return. Call this combination portfolio P. (4 points) (ii) Find the level of arbitrage return from buying P and selling Q. (4 points)

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