1. Suppose you estimate a boom will occur only 45 percent of the time and that the expected return on the portfolio in such an environment is 40 percent. You also estimate that a recession will occur 55 percent of the time and that the expected return in such an environment is 5 percent. Whats the expected return of the portfolio?
A. 40 percent
B. 5 percent
C. 20.75 percent
D. 22.5 percent
2. CAPM Required Return A company has a beta of 1.10. If the market return is expected to be 11.5 percent and the risk-free rate is 3.75 percent, what is the company's required return?
16.03%
12.65%
12.28%
16.40%