1.

Bautista's stock has a 50% chance of producing a 25% return, a 30% chance of producing a 10% return, and a 20% chance of
producing a - 28% return. What is the firm's expected rate of return?

2. Dolosa Inc. is considering a capital budgeting project that has an expected return of 25% and a standard deviation of 30%. What
is the project's coefficient of variation?

3. Gacutno believes the following probability distribution exists for its stock. What is the coefficient of variation on the company's
stock?

State of the Economy Profitability of State Occurring Stock’s expected return

Boom 0.45 25%

Normal 0.50 15%

Recession 0.05 5%

4. An analysts has estimated how a particular stock’s return will vary depending on what will happen to the economy:

State of the Economy Profitability of State Occurring Stock’s expected return

Recession 0.10 -60%

Below Ave 0.20 -10%

Average 0.40 15%

Above Ave 0.20 40%

Boom 0.10 90%

What is the company’s variation on the company’s stock?

5. Trasmil Supplies stock has a beta of 1.23, its required return is 11.75%, and the risk-free rate is 4.30%. What is the required rate
of return on the market?

6. A stock has an expected return of 12.25 percent. The beta of the stock is 1.15 and the risk-free rate is 5 percent. What is the
market risk premium?

7. Calculate the required rate of return for Castillo, Inc., assuming that investors expect a 5 percent rate of inflation in the future.
The real risk-free rate is equal to 3 percent and the market risk premium is 5 percent. Castillo has a beta of 2.0, and its realized
rate of return has averaged 15 percent over the last 5 years.
8. Cruzana Corp. has a beta of 1.10, the real risk-free rate is 2.00%, investors expect a 3.00% future inflation rate, and the market
risk premium is 4.70%. What is Cruzana's required rate of return?

9. Marasigan is holding a stock which has a beta of 2.0 and is currently in equilibrium. The required return on the stock is 15
percent, and the return on an average stock is 10 percent. What would be the percentage change in the return on the stock, if the
return on an average stock increased by 30 percent while the risk-free rate remained unchanged?

10. Orca Corporation has a beta of 2.0, while Reyes Corporation's beta is 0.5. The risk-free rate is 10 percent, and the required rate
of return on an average stock is 15 percent. Now the expected rate of inflation built into fre falls by 3 percentage points, the real
risk-free rate remains constant, the required return on the market falls to 11 percent, and the betas remain constant. When all of
these changes are made, what will be the difference in the required returns on Orca's and Reyes' stocks?

11. Daylusan Company has a beta of 0.70, while Anselmo Company's beta is 1.20. The required return on the stock market is
11.00%, and the risk-free rate is 4.25%. What is the difference between Daylusan's and Anselmo's required rates of return?

12. Morales has a beta of 0.88 and an expected dividend growth rate of 4.00% per year. The T-bill rate is 4.00%, and the T-bond
rate is 5.25%. The annual return on the stock market during the past 4 years was 10.25%. Investors expect the average annual
future return on the market to be 12.50%. What is the firm's required rate of return?

13. The returns of MCI Inc. are listed below, along with the returns on the market:

Year MCI Market

1 -14 -9

2 16 11

3 22 15

4 7 5

5 -2 -1

If the risk free rate is 9% and the required return on MCI’s Stocks is 15%, what is the required return on the market? Assume that
the market is in equilibrium.
14. Bansal Corp has P100,000 invested in a 2-stock portfolio. P35,000 is invested in Stock X and the remainder is invested in
Stock Y. X's beta is 1.50 and Y's beta is 0.70. What is the portfolio's beta?

15. what is the portfolio’s beta if Booss J holds a P200,000 portfolio consisting of the ff stocks?

Stock Investment Beta

A 50,000 0.95

B 50,000 0.80

C 50,000 1.00

D 50,000 1.20

16. Superales Co. is forming a portfolio by investing P50,000 in stock A which has a beta of 1.50, and P25,000 in stock B which
has a beta of 0.90. The return on the market is equal to 6 percent and Treasury bonds have a yield of 4 percent. What is the
required rate of return on the Superales' portfolio?

17. The P10.00 million mutual fund that Buefano manages has a beta of 1.05 and a 9.50% required return. The risk-free rate is
4,20%. Buefano now receives another P5.00 million, which she invests in stocks with an average beta of 0.65. What is the
required rate of return on the new portfolio?

18. Masiglat hold a diversified portfolio consisting of a P10,000 investment in each of 20 different common stocks (i.e., her total
investment is P200,000). The portfolio beta is equal to 1.2. She had decided to sell one of her stocks which had a beta equal to 0.7
for P10,000. She plans to use the proceeds to purchase another stock which has a beta equal to 1.4. What will be the beta of the
new portfolio?

19. Alegre's portfolio consists of P100,000 invested in a stock which has a beta = 0.8, P150,000 invested in a stock which has a
beta = 1.2, and P50,000 invested in a stock which has a beta = 1.8. The risk-free rate is 7 percent. Last year this portfolio had a
required rate of return of 13 percent. This year nothing has changed except for the fact that the market risk premium has increased
by 2 percent (two percentage points). What is the portfolio's current required rate of return?