Question: 1. What is the risk premium for Litchfield Design stock if the stock has a beta of 0.65, the expected return on the market is 16.71 percent, the risk-free rate is 3.74 percent, and inflation is 2.4 percent? Answer as a rate in decimal format so that 12.34% would be entered as .1234 and 0.98% would be entered as .0098.
2. What is the expected return of a portfolio of two stocks that has 3,500 shares of stock A, which has a price of 24.2 dollars per share and an expected return of 7.83 percent, and 66,800 dollars of stock B, which has a beta of 1.53? The market has an expected return of 10.02 percent, the inflation rate is 1.13 percent, and the risk-free rate is 5.54 percent. Answer as a rate in decimal format so that 12.34% would be entered as .1234 and 0.98% would be entered as .0098.