Problem 8-1 Given the following information:

Standard deviation for stock X= 12%

Standard deviation for stock Y=20%

Expected return for stock X=16%

Expected return for stock Y=22%

Correlation coefficient between X and Y= .3

The covariance between stocks X and Y is:

a. 0.048

b. 72.00

c. 3.60

d. 105.6

Problem 8.2 Given the information in Problem 8.1, the standard deviation for a portfolio consisting of 50% invested in X and 50% invested in Y is:

a. 19%

b. 16%

c. Less than 16%

d. More than 22%

Problem 9-1 The market has an expected return of 11 percent, and the risk-free rate is 5%. Pfizer has a beta of 0.9. What is the required return for Pfizer?

Problem 9-4 The expected return for the market is 12%, and the risk-free rate is 8 percent. The following information is estimated for each of five stocks.

Stock	Beta	R(%)
1	0.9	12
2	1.3	13
3	0.5	11
4	1.1	12.5
5	1.0	12

a. Calculate the required return for each stock.

b. Assume that an investor, using fundamental analysis, develops the estimated returns, R, for these stocks. Based on the investors estimates, determine which stocks are undervalued and which are overvalued.

c. What is the market risk premium?

9-5 Assume that the risk-free rate is 7 percent and the market risk premium is 6 percent. Show that the security market line is E (R) =7.0+6.0Beta

Assume that an investor has estimated the following values for six different corporations:

Corporation	B	R (%)
GF	0.8	12
PepsiCo	0.9	13
IBM	1.0	14
NCNB	1.2	11
EG&G	1.2	21
EAL	1.5	10

Calculated the expected return for each corporation using the SML, and evaluate which securities are overvalued and which are undervalued.