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Sport Business and Finance - SPTE 440 Department of Sport and Entertainment Chapter 3 - Extra Problems.

1. What is the expected return for the following stock? (State your answer in percent with one decimal places). Outcomes Possible returns Probability better 32% 0.5 same 17% 0.2 worse -10% 0.3

2. What is the expected return for the following portfolio? (State your answer in percent with two decimal places.) Stock Expected returns Investment AAA 31.20% $190,000 BBB 24.00% $350,000 CCC 18.60% $200,000 DDD 11.90% $500,000

3. If the risk-free rate is 4.3%, the expected return on the market is 15.7%, and the expected return on Security J is 21.5%, what is the beta for Security J? (Calculate your answer to two decimal places.)

4. You are considering buying a stock with a beta of 0.73. If the risk-free rate of return is 6.9 percent, and the expected return for the market is 12.2 percent, what should the expected rate of return be for this stock? (State your answer as a percentage.)

5. If the risk-free rate is 6.9%, the market risk premium is 7.0%, and the expected return on Security J is 29.4%, what is the beta for Security J? (Calculate your answer to two decimal places.)

6. You are considering buying a stock with a beta of 2.05. If the risk-free rate of return is 6.9 percent, and the market risk premium is 10.8 percent, what should the expected rate of return be for this stock? (State your answer as a percentage.)

7. You are holding a stock that has a beta of 2.4 and is currently in equilibrium. The required return on the stock is 20.4% and the return on a risk-free asset is 8%. What would be the return on the stock if the stock's beta increased to 3.3 while the risk-free rate and market return remained unchanged? (Calculate your answer to two decimal places and state it as a percentage.)

8. The risk-free return is 4.1% and the market return is 14.0%. What is the expected return for the following portfolio? (State your answer in percent with two decimal places.) Stock Beta Investment AAA 3.4 $125,000 BBB 2.9 $330,000 CCC 1.3 $230,000 DDD 0.9 $500,000

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