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1 Rate of Return if State Occurs Stock B

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1 Rate of Return if State Occurs Stock B .20 State of Economy Recession Normal Boom Probability of State of Economy .20 .50 .30 Stock A -15 .20 .60 .30 .40 Q1: What are the expected returns and standard deviations for these two stocks? Security Cooley Inc. Moyer Company Beta 1.8 1.6 Expected Retum 22.00% 20.44 Q2: If the risk-free rate is 7 percent, are these securities correctly priced? What would the risk-free rate have to be if they are correctly priced?
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Suppose you want to be a millionaire in 10 years. How much will you at least have to put aside each year in order to become one? Assume that the interest rate is 5% and your first deposit is at the end of this year.