Question: 1. (8 Points) Answer the questions below using the following information on stocks A, B, and C. A B C Expected Return 20% 21% 10%

1.(8 Points) Answer the questions below using the following information on stocks A, B, and C.

	A	B	C
Expected Return	20%	21%	10%
Standard Deviation	12%	10%	10%
Beta	1.8	2.2	0.8

Assume the risk-free rate of return is 3% and the expected market return is 12%

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? Not a diversified portfolio, ownership of one security.

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