1. Use the capital-asset pricing model to predict the return next year of a stock with a beta of 1.0, if you expect the return to holding stocks to be 8 percent on average, and the interest rate on three-month T-bills will be 3 percent. What is the expected return to this stock?

a. 5.5 percent

b. 2.5 percent

c. 8.0 percent

d. 5.0 percent

2. The DuPont equation can be computed as:

a. Return on equity × Profit margin × Total asset turnover.

b. Net income × Profit margin × (1 + Debt-equity ratio).

c. Profit margin × Total asset turnover × Debt-equity ratio.

d. Profit margin × (1 / Capital intensity) × (1 + Debt-equity ratio).

e. Net income × Total asset turnover × Equity multiplier.