Question 1. Company X has a beta of .85, the risk-free rate of return is 1%, and the average return on the market is 9%. (1) Calculate the required rate of return on Company X's stock. Show how you derive the answer. (2) Does Company X's stock have greater risk, the same risk, or less risk than the average stock? Explain.
Question 2. The 1-year interest rate is 7% in the U.S. and 3% in Japan. How much would the yen have to appreciate for a U.S. investor to get the same return on both U.S. and Japanese investments? Show you derive the answer.