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1. A stock's returns have the following distribution:

Data

Demand for the	Probability of this	Rate of Return if
Company's Products	Demand Occurring	this Demand Occurs
Weak	40%	-30%
Average	40%	10%
Strong	20%	15%

Calculate the stock's expected return, show work.

2. The Beta of a large portfolio of stocks should be close to zero due to the effects of diversification.

a.true b. false

3. A study by Eugene Fama of the University of Chicago and Kenneth French of Dartmouth found clear evidence that there is a historical relationship between stocks' returns and their market betas.

a.true b. false