True or False: 1. Assets carry varying levels of risk.

Asset risk refers to an investment with a return that is not guaranteed. 2. Holding a corporate bond is generally more risky than holding a stock. 3. Government bonds are generally not considered risky assets. 4. An investment risk is the probability that an actual return on an investment will be higher than the investor's expectations. 5. All investments have some level of risk associated to it due to the volatility of the market's direction. 6. Risk refers to the certainty of a return. 7. Asset risk is primarily a function of the relative amount of debt that the firm uses to finance its assets. 8. A higher proportion of debt increases the likelihood that at some point the firm will be able to make the required interest and principal payments. 9. Financial risk is the possibility of whether a bond issuer will default, by failing to repay principal and/or interest in a timely manner. 10. Bonds issued by corporations are more probable to be defaulted on, since companies often go bankrupt. Answer the following: 11. Find the Expected Return on the Market Portfolio given that the Expected Return on Stock i is 6.19%, the Risk-Free Rate is 4%, and the Beta for Stock i is 0.3. 12. Find the Expected Return on the Market Portfolio given that the Expected Return on Stock i is 12.6%, the Risk-Free Rate is 9.8%, and the Beta for Stock i is 0.7. 13. Find the Beta for Stock i given that the Expected Return on Stock i is 16.99%, the Expected Return on the Market Portfolio is 12.7%, and the Risk-Free Rate is 9.4. 14. Find the Risk-Free Rate given that the Expected Return on Stock i is 4.64%, the Expected Return on the Market Portfolio is 10.1%, and the Beta for Stock i is 0.3. 15. Find the Risk-Free Rate given that the Expected Return on Stock i is 28.26%, the Expected Return on the Market Portfolio is 20.5%, and the Beta for Stock i is 1.8.

True or False: 1. Assets carry varying levels of risk. Asset risk refers to an investment with a return that is not guaranteed. 2. Holding a corporate bond is generally more risky than holding a stock. 3. Government bonds are generally not considered risky assets. 4. An investment risk is the probability that an actual return on an investment will be higher than the investor's expectations. 5. All investments have some level of risk associated to it due to the volatility of the market's direction. 6. Risk refers to the certainty of a return. 7. Asset risk is primarily a function of the relative amount of debt that the firm uses to finance its assets. 8. A higher proportion of debt increases the likelihood that at some point the firm will be able to make the required interest and principal payments. 9. Financial risk is the possibility of whether a bond issuer will default, by failing to repay principal and/or interest in a timely manner. 10. Bonds issued by corporations are more probable to be defaulted on, since companies often go bankrupt. Answer the following: 11. Find the Expected Return on the Market Portfolio given that the Expected Return on Stock i is 6.19%, the Risk-Free Rate is 4%, and the Beta for Stock i is 0.3. 12. Find the Expected Return on the Market Portfolio given that the Expected Return on Stock i is 12.6%, the Risk-Free Rate is 9.8%, and the Beta for Stock i is 0.7. 13. Find the Beta for Stock i given that the Expected Return on Stock i is 16.99%, the Expected Return on the Market Portfolio is 12.7%, and the Risk-Free Rate is 9.4. 14. Find the Risk-Free Rate given that the Expected Return on Stock i is 4.64%, the Expected Return on the Market Portfolio is 10.1%, and the Beta for Stock i is 0.3. 15. Find the Risk-Free Rate given that the Expected Return on Stock i is 28.26%, the Expected Return on the Market Portfolio is 20.5%, and the Beta for Stock i is 1.8. 2. Less 4. Lower 6. Uncertainty 7. Financial risk 8. Unable 11. 11.3% 12. 13.8% 13. 2.3 14. 2.3% 15. 10.8%