1. Why is expected return considered forward-looking? What are the challenges for practitioners to utilize expected return?
2. Describe how different allocations between the risk-free security and the market portfolio can achieve any level of market risk desired.
3. Refer to the table below to complete this question. "Compute the expected return given these three economic states, their likelihoods, and the potential returns.
4. The average annual return on the Standard and Poor's 500 Index from 1986 to 1995 was 15.8 percent. The average annual T-bill yield during the same period was 5.6 percent. What was the market risk premium during these 10 years p251)?