Consider the following information on a portfolio of three stocks: State of Economy Probability of State of Economy Stock A Rate of Return Stock B Rate of Return Stock C Rate of Return Boom .12 .05 .35 .57 Normal .52 .13 .15 .23 Bust .36 .19 –.14 –.38 Required: (a) If your portfolio is invested 42 percent each in A and B and 16 percent in C, what is the portfolio’s expected return, the variance, and the standard deviation?

What is the most important type of decision that the financial manager makes?

2. the language of price controls consider the market for rental cars. suppose that, in a competitive market without government regulations, the equilibrium price of rental cars is $58 per day, and employees at car rental companies earn $19.50 per hour. complete the following table by indicating whether each of the statements is an example of a price ceiling or a price floor and whether it results in a shortage or a surplus or has no effect on the price and quantity that prevail in the market. statement price control effect there are many teenagers who would like to work at car rental companies, but the minimum-wage law sets the hourly wage at $23.00. the government has instituted a legal minimum price of $87 per day for rental cars. the government prohibits car rental companies from renting out rental cars for more than $87 per day.

Suppose you purchase shares in acme gadget company for $10 per share. the company believes there is a 20 percent chance it will fail to earn a discounted future profit of $1.85. what is the expected rate of return on your investment? suppose you purchase shares in acme gadget company for $10 per share. the company believes there is a 20 percent chance it will fail to earn a discounted future profit of $1.85. what is the expected rate of return on your investment?