Richard is using the capital retention approach to determine how much life insurance to purchase. Richard would like to provide $45,000 per year to his family, forever, if he dies. The assets that he has today will provide $35,000 in annual income without the liquidation of these assets. If life insurance proceeds can be invested to earn a 5 percent annual return, how much life insurance should Richard purchase to fund the additional income needed to meet the $45,000 annual income goal?

Susan has one risk-free asset and one risky stock in her portfolio. The risk-free asset has an expected return of 4.8 percent. The risky asset has a beta of 1.2 and an expected return of 13.8 percent. What is the expected return on the portfolio if the portfolio beta is 1.02?