a.Risk-free rate and Sharpe ratio Using the data for the Treasury bond in determine the theoretical risk-free rate rf so that the Sharpe ratio of the T-Bond be equal to 1.

b: Risk and return of Richky Corp. The table below gives the stock price of Richky Corp. at the end of

each month over the past year. The risk-free rate was constant at 5%.

(a) Given a $134 initial stock price at the end of the previous year and a $13 dividend per share distributed on 30 June, calculate the monthly returns of Richky Corp. Assume that the dividend is reinvested in the stock.

(b) What is the realized risk-return profile of Richky Corp.?

(c)  You are the Chief Financial Officer of Richky Corp. At a business meeting, Mr David Haffmann, the Production Manager, proposes a project which would reduce annual production costs by $1.2 per share on average with a standard deviation of $0.6 per share. Do you approve this project? There are several possible answers to this question.

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