Q1 Answer the questions below using the following information on stocks A, B, and C.

A B C

Expected Return 13% 13% 10%

Standard Deviation 12% 10% 10%

Beta 1.6 2 0.5

Assume the risk-free rate of return is 4% and the expected market return is 10% a. Calculate the required return for stocks A, B, and C. b. Assuming an investor with a well-diversified portfolio, which stock would the investor want to add to his portfolio? c. Assuming an investor who will invest all of his money into one security, which stock will the investor choose?

1) The expected return for the market portfolio is 15%, the expected return on U.S. Treasury Bills is 4%, and the expected return on AAA-rated short-term corporate bonds is 8%. Calculate the required return for a stock with a beta equal to 1.4.

2) Security A has an expected rate of return of 29.8 percent and a beta of 3.1. Security B has a beta of 1.70. If the Treasury bill rate is 5 percent, what is the expected rate of return for Security B?

3. Answer the questions below using the following information on stocks A, B, and C 13% B 13% 10% Expected Return Standard Deviation Beta 12% 1.6 10% 2 10% 0.5 Assume the risk-free rate of return is 4% and the expected market return is 10% a. Calculate the required return for stocks A, B, and C. b. Assuming an investor with a well-diversified portfolio, which stock would the investor want to add to his portfolio? c. Assuming an investor who will invest all of his money into one security, which stock will the investor choose? 1. The expected return for the market portfolio is 15%, the expected return on U.S. Treasury Bills is 4%, and the expected return on AAA-rated short-term corporate bonds is 8%. Calculate the required return for a stock with a beta equal to 1.4 2. Security A has an expected rate of return of 29.8 percent and a beta of 3.1. Security B has a beta of 1.70. If the Treasury bill rate is 5 percent, what is the expected rate of return for Security B? 1