1. The stock of Amrep Corporation has a beta value estimated to be 1.4. How would you interpret this beta value? How would you evaluate the firm's systematic risk?

2. How is a security's beta value computed?

3. Under what circumstances can the beta concept be used to estimate the rate of return required by investors in a stock? What problems are encountered when using the CAPM?

4. The enclosed area in Figure 8.16 shows all the possible portfolios obtained by combining the given securities in different proportions (i.e., the opportunity set).

a. Which of the portfolios (A, B, C, D, E, or F) is (are) on the efficient frontier?

b. If an investor is interested in maximizing expected returns, which portfolio should be chosen?

c. If an investor is interested in minimizing risk (as measured by standard deviation), which portfolio should be chosen?

5. What is the term structure of interest rates?

6. What is the risk structure of interest rates?

7. How is risk defined in a financial sense?

8. Discuss the general relationship between risk and expected return.

9. What factors determine investors' required rates of return on corporate bonds? Common stocks? U.S. government bonds?

Text Book: Contemporary Financial Management By R. Charles Moyer, James McGuigan, Ramesh Rao.