1. Large-cap stocks had the nominal rates of return of 12.27 percent. The rate of inflation during the last year was 1.67 percent. What is the real rate of return for large-cap stocks?

2. "The variance of Firm A is 8%. The variance of firm B is 10%. Firm B should have a higher required return." True or false. Why?

3. You plan to save $1,400 for the next four years, beginning now, to pay for a vacation. If you can invest it at 6 percent, how much will you have at the end of four years? (Round to the nearest dollar.)