IMPORTANT: SHOW YOUR DETAILED SOLUTIONS FOR EACH QUESTION.

Explain what type of problem is it, explain which formula are you using, identify the variables in the formula and explain where are you finding the respective values, and solve the calculation.

1.-Belvedere Co. has identified an investment project with the following cash flows. If the discount rate is 10 percent, what is the present value of these cash flows?

What is the pay back of this project?

What is the IRR of the project?

Year 0= -1000

Year 1=+500

Year 2= +600

Year 3= +100

Year 4=+350

2.- Your job pays you only once a year for all the work you did over the previous 12 months. Today, December 31, you just received your salary of 75,000, and you plan to spend all of it. However, you want to start saving for retirement beginning next year. You have decided that one year from today you will begin depositing 10 percent of your annual salary in an account that will earn 5 percent per year. Your salary will increase at 3 percent per year throughout your career. How much money will you have on the date of your retirement 35 years from today?

3.- You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.65 and the total portfolio is equally as risky as the market, what must the beta be for the other stock in your portfolio?

4.- A stock has an expected return of 13.1 percent, a beta of 1.28, and the expected return on the market is 11 percent. What must the risk-free rate be?

5.- Asset A has an expected return of 12 percent and a beta of 1.5. If the risk-free rate is 4 percent, complete the following table for portfolios of Asset A and a risk-free asset. Illustrate the relationship between portfolio expected return and portfolio beta by plotting the expected returns against the betas.

% asset A	% portfolio RF	Portfolio ER	Portfolio Beta
0
25%
50%
75%
100%