You have $5 million dollars to invest in stocks. You have decided to do so in three firms. Following the example in class and in tabular form, divide the $5 million dollars among the three firms and calculate expected return on your portfolio.

Suppose that from a new checkable deposit, First National Bank holds 2 million dollars in vault cash, 8 million dollars on deposit with the Federal Reserve, and 1 million dollars in required reserves. Given this information, we can say First National Bank has ________ million dollars in excess reserves.

Suppose stock returns can be explained by the following three-factor model:

R_i = R_F + β₁F₁ + β₂F₂ − β₃F₃

Assume there is no firm-specific risk. The information for each stock is presented here:

The risk premiums for the factors are 7 percent, 6.2 percent, and 6.6 percent, respectively. You create a portfolio with 20 percent invested in Stock A, 20 percent invested in Stock B and the remainder in Stock C.

Suppose the Fed decides to stimulate the economy. Assume there is no cash leakage and required reserve ratio is 20% now, and banks have no excess reserves.

Show how the Fed would increase M1 by 1 million dollars by changing the reserve ratio.

Show how the Fed would increase M1 by 1 million dollars through open market operation. (You are expected to make some assumptions and work out some numbers to get full credit. If you can break the answer in parts like initially and ultimately, that will be fantastic!