1. Assume that you are trying to predict the return of a security in a two (risk) factor model. The risk free rate is 5%, the risk premium on the first factor is 3%, the risk premium on the second factor is 5%. The beta of the first factor is 1.2 and the beta of the second factor is 0.8. What is the expected return of the security?
A. 12.6%
B. 11%
C. 13.8%
D. There is not enough information to determine the expected return
2. Stocks A and B had the following performance in the past three years. please calculate the average rate of return, standard deviation, and CV ratios for these two stocks. Which did better?
year stock A Stock B
2014 0.06 0.05
2015 0.20 0.10
2016 0.10 0.15