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One-year Treasury securities yield 7.7%, 2-year Treasury securities yield 6.8%,  and 3-year Treasury securities yield 7%. Assume that the expectations theory  holds. What does the market expect will be the yield on 1-year Treasury  securities two years from now?

Assume the risk-free rate is 1% and that the required return on the market is 5.3%.   If a stock has a required rate of return of 5.1%, what is its beta?

Suppose you hold a diversified portfolio consisting of a $12,999 invested equally  in each of 5 different common stocks.  The portfolio’s beta is 0.88.  Now  suppose you decided to sell one of your stocks that has a beta of 1.4 and to  use the proceeds to buy a replacement stock with a beta of 0.7.  What would  the portfolio’s new beta be?

The real risk-free rate of interest is 2 percent.  Inflation is expected to be 3 percent this  coming year, jump to 5 percent next year, and increase to 6 percent the year after (Year 3).   According to the expectations theory, what should be the interest rate on 2-year, risk-free  securities today?

Drongo Corporation’s 3-year bonds currently yield 6.7 percent and have an inflation premium  of 3.6%.  The real risk-free rate of interest, r*, is 2.6 percent and is assumed to be constant.   The maturity risk premium (MRP) is estimated to be 0.1%(t – 1), where t is equal to the time to  maturity.  The default risk and liquidity premiums for this company’s bonds total 0.3 percent and are believed to be the same for all bonds issued by this company.  If the average inflation  rate is expected to be 1.6 percent for years 4, 5, and 6, what is the yield on a 6-year bond for  Drongo Corporation?

According to the Capital Asset Pricing Model (CAPM), beta is a measure of __________.

A stock has an expected return of 18.7 percent.  The beta of the stock is 2.32 and the risk-free rate is 1.5 percent.  What is the market risk premium?

Suppose you hold a diversified portfolio consisting of a $9,149 invested equally  in each of 5 different common stocks.  The portfolio’s beta is 0.81.  Now  suppose you decided to sell one of your stocks that has a beta of 0.7 and to  use the proceeds to buy a replacement stock with a beta of 1.1.  What would  the portfolio’s new beta be?

Suppose the real risk-free rate is 4.8%,  the average future inflation rate is  2.4%, and a maturity premium of 0.1% per year to maturity applies, i.e., MRP =  0.1%(t), where t is the years to maturity.  What rate of return would you  expect on a 4-year Treasury security, assuming the pure expectations theory is NOT valid?

The risk-free rate is 3.4 percent.  Stock A has a beta = 1.8 and Stock B has a beta = 1.1. Stock A has a required return of 7 percent.  What is Stock B’s required return?