1. Eric deposits X into a savings account at time 0, which pays interest at a nominal rate equal to r, compounded semiannually. Mike deposits 4X into a different savings account at time 0, which pays simple interest at an annual rate equal to r. Eric and Mike earn the same amount of interest during the first 6 months of the 5th year. Calculate r.
2. Preston Inc.'s stock has a 25% chance of producing a 30% return, a 50% chance of producing a 12% return, and a 25% chance of producing a -18% return. What is the firm's expected rate of return?