1. A stock has a beta of 1.

15, the expected return on the market is

11 percent, and the risk-free rate is 5 percent. What must the expected return on this
stock be?
2. A stock has an expected return of 10.2 percent, the risk-free rate
is 4 percent, and the market risk premium is 7 percent. What must the beta of this
stock be?
3. North Pole Fishing Equipment Corporation and South Pole
Fishing Equipment Corporation would have identical equity betas of 1.10 if both were
all equity financed. The market value information for each company is shown here:

The expected return on the market portfolio is 10.9 percent, and the risk-free rate
is 3.2 percent. Both companies are subject to a corporate tax rate of 35 percent.
a. What is the equity beta of each of the two companies?
b. What is the required rate of return on each of the two companies’ equity?
4. Arithmetic and Geometric Returns A stock has had returns of 27 percent, 12 percent,
32 percent, -12 percent, 19 percent, and -31 percent over the last six years. What
are the arithmetic and geometric returns for the stock?