problem1. Stock A has beta of 0.8, Stock B has beta of 1.0, and Stock C has a beta of 1.2. Portfolio P has 1/3 of its value invested in each of these stocks. Each and every stock has a standard deviation of 25%, and their returns are independent of one another, that is, the correlation coefficients between each pair of stock are zero. Supposing the market is in equilibrium, which of the following statements is correct?
A. Portfolio P's expected return is equal to the expected return on stock B.
B. Portfolio P's expected return is equal to the expected return on stock A.
C. Portfolio P's expected return is greater than the expected return on stock B.
D. Portfolio P's expected return is less than the expected return on stock B.
E. Portfolio P's expected return is greater than the expected return on stock C.
problem2. An investment costs $500 and is anticipated to produce cash flows of $50 at the end of Year 1, $60 at the end of Year 2, $70 at the end of Year 3, and $516 at the end of Year 4. What rate of return would you earn when you bought this investment?
A. 11.1%
B. 12.7%
C. 10.0%
D. 9.5%
E. 10.9%
problem3. The Jordan family recently bought their first home. The house has a 15-year (180-month), $165,000 mortgage. The mortgage has nominal annual interest rate of 7.75%. All mortgage payments are made at the end of month.
What will be the remaining balance on mortgage after one year (right after the 12th payment has been made)?
A. $152,879.31
B. $160,856.84
C. $160,245.39
D. $158,937.91
E. $155,362.50