Question 1: Beta afrm and idiosyncratic risk [10 points] The stock price of Beavers, a logging firm, tends to increase by 50% on average when the economy is booming. When the economy is weak, it goes down by 30%. At the same time, the market portfolio tends to increase by 57% in booms and decrease by 35% during periods of weak economy. a. What is the beta of the firm? How would you interpret it? b. What is the beta of the firm if it bears only idiosyncratic, firm-specific risk? Question 2: Time Wine of Money [25 points] You get NOK35,000 as a gift for your graduation. You decide to invest this money in a bank account. B) How much do you have after 5 years if the interest rate is 5%? b. How much do you have after 10 years if the interest rate is 5%? C. Is the amount of interest that you earn in 10 years exactly equal to twice the amount you earn in 5? Why? Question 3: Yieid Curve [20 points] You observe the following bonds In the market. Assume they are risk-free and have a face value of $1,000. The market prices are described in the table below: Bond Market price today Bond type a. Write down the timeline of the cash-flows for each bond. Assume you buy the bonds. b. What are the yields on the zero-coupon bonds? (Express the answer in percent using 3 digits. E.g., 7.456%} c. Is there an arbitrage opportunity? Explain. {Do NOT need to show how to expioit the arbitrage if it exists)