Question: can you pick one question and give a thorough explanation 8-4 8-5 Is it possible to construct a portfolio of real-world stocks that has a
8-4 8-5 Is it possible to construct a portfolio of real-world stocks that has a required return equal to the risk-free rate? Explain. Stock A has an expected return of 7%, a standard deviation of expected returns of 35%, a correlation coefficient with the market of -0.3, and a beta coefficient of -0.5. Stock B has an expected return of 12%, a standard deviation of returns of 10%, a 0.7 correlation with the market, and a beta coefficient of 1.0. Which security is riskier? Why? A stock had a 12% return last year, a year when the overall stock market declined. Does this mean that the stock has a negative beta and thus very little risk if held in a portfolio? Explain. If investors' aversion to risk increased, would the risk premium on a high-beta stock increase by more or less than that on a low-beta stock? Explain. If a company's beta were to double, would its required return also double? 8-6 8-7 8-8
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