7. Problem 8.13 (CAPM, Portfolio Risk, and Return) eBook Problem Walk-Through Consider the following information for stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock Standard Deviation Beta Expected Return 9.64% 11.46 16% 16 16 0.8 1.2 1.6 13.28 Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 6%, and the market is in equilibrium. (That is, required returns equal expected returns.) a. What is the market risk premium (M - PRF)? Round your answer to two decimal places. % b. What is the beta of Fund P? Do not round intermediate calculations. Round your answer to two decimal places. c. What is the required return of Fund P? Do not round intermediate calculations. Round your answer to two decimal places. d. Would you expect the standard deviation of Fund P to be less than 16%, equal to 16%, or greater than 16%? I. Less than 16% II. Greater than 16% III. Equal to 16% -Select- 3. Problem 8.05 (Beta and Required Rate of Return) eBook A stock has a required return of 13%, the risk-free rate is 3.5%, and the market risk premium is 3%. a. What is the stock's beta? Round your answer to two decimal places. b. If the market risk premium increased to 7%, what would happen to the stock's required rate of return? Assume that the risk-free rate and the beta remain unchanged. Do not round intermediate calculations. Round your answer to two decimal places. I. If the stock's beta is equal to 1.0, then the change in required rate of return will be less than the change in the market risk premium. II. If the stock's beta is greater than 1.0, then the change in required rate of return will be greater than the change in the market risk premium. III. If the stock's beta is less than 1.0, then the change in required rate of return will be greater than the change in the market risk premium. IV. If the stock's beta is greater than 1.0, then the change in required rate of return will be less than the change in the market risk premium. V. If the stock's beta is equal to 1.0, then the change in required rate of return will be greater than the change in the market risk premium. -Select- New stock's required rate of return will be