Part A.

Question 1

Security A has expected return of 17.6% and beta of 1.4. If the risk-free rate is 6%, what is the reward-to-risk rate for Security A?

Enter your answer as a percentage rounded off to two decimal points. Do not enter % in the answer box.

Question 2

The common stock of Detroit Engines has a beta of 1.3 and expected returns of 14.44 percent. The risk-free rate is 4.43 percent. What is the expected return on the market?

Hint: Use the CAPM equation to get the answer.

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

Question 3

Security A has expected return of 14% and beta of 1.60. Security B has expected return of 10% and beta of 0.80. What would hte risk-free rate have to be for the two stocks to be correctly priced relative to each other?

Enter your answer as percentage rounded off to two decimal points. Do not enter % in the answer box.

Question 4

You own a portfolio invested 14.31% in Stock A, 19.64% in Stock B, 20.71% in Stock C, and the remainder in Stock D. The beta of these four stocks are 1.31, 0.2, 0.99, and 1. What is the portfolio beta?

Note: Enter your answer rounded off to two decimal points. For example, if your answer is 12.345 then enter as 12.35 in the answer box.

Question 5

Suppose you have a portfolio where you have invested $9882 in Stock A and Stock B. Stock A has an expected return of 14.2% and Stock B has an expected return of 4.1%. If your goal is to create portfolio with an expected return of 10.7%, what is your dollar investment in Stock A?

Note: Enter your answer rounded off to two decimal points. Do not enter $ in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

Question 6

Portfolio diversification eliminates which one of the following?

Market risk

Reward for bearing risk

Portfolio risk premium

Unsystematic risk

Total investment ris

Question 7

A portfolio is invested 31.1% in Stock A, 16.5% in Stock B, and the remainder in Stock C. The expected returns are 18.8%, 30.7%, and 9.2% respectively. What is the portfolio's expected returns?

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 12.345% then enter as 12.35 in the answer box.

Question 8

The common stock of Detroit Engines has a beta of 1.8 and expected returns of 14.4 percent. The risk-free rate is 4.81 percent. What is the expected return on the market?

Hint: Use the CAPM equation to get the answer.

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

Question 9

If the expected return on Stock A is 13.46% and the return on the market is 7%. What is the beta for Stock A if the risk-free rate is 3%?

Hint: Use the CAPM equation to get the answer.

Enter your answer in percentages rounded off to two decimal points. D0 not enter % in the answer box.

Question 10

Suppose your portfolio consists of Stock A and Stock B. Stock A has an expected return of 16.3% and Stock B has an expected return of 6.7%. If your goal is to create portfolio with an expected return of 8.8%, what is your weight in Stock A?

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 12.345% then enter as 12.35 in the answer box.

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Question 11

Given the investment in Stocks A, B, and C, compute the portfolio beta. Enter your answer rounded off to two decimal points

Stock Investment Beta

A $1800 1.44

B $2400 1.58

C $3400

0.92

Question 12

Given the investment in Stocks A, B, and C, compute the expected return on the portfolio. Enter your answer in percentages, rounded off to two decimal points. Do not enter % in the answer box.

Stock Investment Exp Returns

A $1500 8%

B $2000 4%

C $2500 -2%

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Question 13

The common stock of Detroit Engines has a beta of 1.84. The expected return on the market is 11 percent and the risk-free rate is 3 percent. What is the firm's expected return, E(Ri)?

Hint: Use the CAPM equation to get the answer.

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

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Question 14

A portfolio contains 161 shares of Stock A that sell for $42 each, 306 shares of Stock B that sell for $95 each and 55 shares of Stock C that sell for $61 each. What is the portfolio expected return if the expected returns on these stocks is 14.9%, 11.1%, and 7.9% respectively?

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 12.345% then enter as 12.35 in the answer box.

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Question 15

The common stock of Detroit Engines has a beta of 1.54 and expected returns of 14.54 percent. The expected return on the market is 3.31 percent. What is the risk-free rate?

Hint: Use the CAPM equation to get the answer.

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

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Question 16

Suppose your portfolio consists of Stock A and Stock B. Stock A has an expected return of 18.5% and Stock B has an expected return of 4.2%. If your goal is to create portfolio with an expected return of 12.6%, what is your weight in Stock B?

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 12.345% then enter as 12.35 in the answer box.

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Question 17

You want a portfolio as risky as the market. Given the information below, compute the weight of the risk-free asset.

Enter your answer in percentages, rounded off to two decimal points. Do not enter % in the answer box.

Asset Investment Beta

Stock A 40.00% 1.4

Stock B 25.00% 0.9

Stock C ? 2.25

Risk-free asset ? ?

Question 18

Given the data below, compute the standard deviation for stock A. Enter your answer in percentages rounded off to two decimal points.Do not enter % in the answer box.

Event Probability Returns

Pessimistic 30% 12%

Most Likely 45% -15%

Optimistic 25% 5%

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Question 19

Stock A has a beta of 0.5. The risk-free asset has a beta of zero. The portfolio of these two securities has a beta of 0.8, what is the weight of Stock A in the portfolio?

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

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Question 20

Suppose you have a portfolio where you have invested $15515 in Stock A and Stock B. Stock A has an expected return of 19.6% and Stock B has an expected return of 6.3%. If your goal is to create portfolio's with an expected return of 10.1%, what is your dollar investment in Stock B?

Note: Enter your answer rounded off to two decimal points. Do not enter $ in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

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Question 21

Given the data below, compute the standard deviation for stock A. Enter your answer in percentages rounded off to two decimal points.Do not enter % in the answer box.

Event Probability Returns

Pessimistic 25% 13%

Most Likely 50% 15%

Optimistic 25% 17%

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Question 22

Stock Y has an expected return of 14% and beta of 1.80. Stock Z has an expected return of 11.50% and beta of 1.10. If the risk-free rate is 3.5% and the market risk premium is 6.5%, which security is overvalued?

Stock Y, because it plots below the SML

Stock Z, because it plots below the SML

Stock Z, because it plots above the SML

Stock Y, because it plots above the SML

No answer text provided.

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Question 23

ABC Inc.'s stock has a 40% chance of producing a 8.6% return, a 25% chance of producing a 11.2% return, and a 35% chance of producing a 21.7% return. What is ABC Inc's expected return?

Enter your answer in percentages rounded off to two decimal points. Do not type % in the answer box.

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Question 24

The common stock of ABC has a beta of 1.22. The market risk premium is 10.7 percent and the risk-free rate is 3.1 percent. What is the firm's expected return, E(Ri)?

Hint: Use the CAPM equation to get the answer.

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

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Question 25

You own a portfolio invested 28.44% in Stock A, 14.81% in Stock B, 27.19% in Stock C, and the remainder in Stock D. The beta of these four stocks are 0.78, 1.14, 0.34, and 1.04. What is the portfolio beta?

Note: Enter your answer rounded off to two decimal points. For example, if your answer is 12.345 then enter as 12.35 in the answer box.

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Question 26

Given the data below, compute the standard deviation for stock B. Enter your answer in percentages rounded off to two decimal points.Do not enter % in the answer box.

Event Probability Returns

Pessimistic 25% 7%

Most Likely 50% 15%

Optimistic 25% 23%

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Question 27

Calculate the expected returns of your portfolio

Stock Invest Exp Ret

A

$301

2.6%

B $649 19.9%

C $497 28%

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 12.345% then enter as 12.35 in the answer box.

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Question 28

You have invested 29% in Stock A, 33.2% in Stock B, and the remainder in the risk free asset. You want a portfolio to be as risky as the market (i.e. you want the beta of your portfolio to equal 1). If Stock A has beta of 0.7, what is the beta of Stock B?

Note: Enter your answer rounded off to two decimal points. For example, if your answer is 12.345 then enter as 12.35 in the answer box.

Part B.

23. The following information is available for Marks Company at December 31, 2019: 1. Inventory balance Beginning of Year End of Year Finished Goods $14,000 $10,000 Work in Process 6,000 12,000 Raw Materials 10,300 6,500 2. Debit postings to Work in Process Inventory during the year were: Direct materials $90,000 Direct labor 60,000 Manufacturing overhead applied its trans 75,000 240. Th 3. Sales totaled $310,000 for the year. ing of Instructions (a) Prepare a condensed cost of goods manufactured schedule. (b) Prepare an income statement for the year through gross profit.Part 3 Arab United Company expects sales during 2013 to rise from the 2012 level of $3.5 million to $3.9 million. Because of a scheduled large loan payment, the interest expense in 2013 is expected to drop to $325,000. The firm plans to increase its cash dividend payments during 2013 to $320,000. The company's year-end 2012 income statement follows. Euro Designs, Inc. Income Statement for the Year Ended December 31, 2012 Sales revenue $3,500,000 Less: Cost of goods sold 1,925,000 Gross profits $1,575,000 Less: Operating expenses 420,000 Operating profits $1,155,000 Less: Interest expense 400,000 Net profits before taxes $ 755,000 Less: Taxes (rate = 40%) 302,000 Net profits after taxes $ 453,000 Less: Cash dividends 250,000 To retained earnings $ 203,000 a. prepare a 2013 pro forma income statement using the percent-of-sales method to b. Analyze the financial plan and explain why the statement may underestimate the company's actual 2013 pro forma income