Home work
Question 1 (1 point)
You have chosen biology as your college major because you would like to be a medical doctor. However, you find that the probability of being accepted into medical school is about 10 percent. If you are accepted into medical school, then your starting salary when you graduate will be $300,000 per year. However, if you are not accepted, then you would choose to work in a zoo, where you will earn $40,000 per year. Without considering the additional educational years or the time value of money, what is your expected starting salary as well as the standard deviation of that starting salary?
Question 2 (1 point)
Given the returns and probabilities for the three possible states listed here, calculate the covariance between the returns of Stock A and Stock B. For convenience, assume that the expected returns of Stock A and Stock B are 0.12 and 0.18, respectively. (Round your answer to 4 decimal places. For example .1244)
Probability 
Return(A) 
Return(B) 

Good 
0.35 
0.30 
0.50 
OK 
0.50 
0.10 
0.10 
Poor 
0.15 
0.25 
0.30 
Question 3 (1 point)
In order to fund her retirement, Michele requires a portfolio with an expected return of 0.10 per year over the next 30 years. She has decided to invest in Stocks 1, 2, and 3, with 25 percent in Stock 1, 50 percent in Stock 2, and 25 percent in Stock 3. If Stocks 1 and 2 have expected returns of 0.11 and 0.08 per year, respectively, then what is the minimum expected annual return for Stock 3 that will enable Michele to achieve her investment requirement?
Question 4 (1 point)
The risk per unit of return is measured by the
Question 5 (1 point)
Lee purchased a stock one year ago for $24. The stock is now worth $32, and the total return to Lee for owning the stock was 0.38. What is the dollar amount of dividends that he received for owning the stock during the year?
Question 6 (1 point)
The beta of M Simon Inc., stock is 1.8, whereas the riskfree rate of return is 0.09. If the expected return on the market is 0.14, then what is the expected return on M Simon Inc?
Question 7 (1 point)
London purchased a piece of real estate last year for $84,900. The real estate is now worth $102,800. If London needs to have a total return of 0.22 during the year, then what is the dollar amount of income that she needed to have to reach her objective?
Question 8 (1 point)
The riskfree rate of return is currently 0.04, whereas the market risk premium is 0.05. If the beta of RKP, Inc., stock is 1.7, then what is the expected return on RKP?