January 11, 2018
###### What temptations might managers face if they have provided earnings guidance to investors and later find it difficult to meet the expectations that they helped create?
January 11, 2018

Finance Basics

1. Considering the world economic outlook for the coming year and estimates of sales and earnings for the pharmaceutical industry, you expect the rate of return for Lauren Labs common stock to range between -20 percent and +40 percent with the following probabilities.

Probability                          Possible Returns

0.10                                                        -0.20

0.15                                                        -0.05

0.20                                                        0.10

0.25                                                        0.15

0.20                                                        0.20

0.10                                                        0.40

Compute the expected rate of return E(Ri) for Lauren Labs

1. Given the following market values of stocks in your portfolio and their expected rates of return, what is the expected rate of return for your common stock portfolio?

Stock                             Market Value in (\$Mil.)                                 E(Ri)

Disney                                          \$15,000                                  0.14

Starbucks                                      17,000                                 -0.04

Harley Davison                            32,000                                 0.18

Intel                                                23,000                                  0.16

Walgreens                                  7,000                                    0.12