Question: Problem 1. Computing expected returns on a multiple-stock portfolio A portfolio consists of three stocks A, B, and C. When the portfolio is formed, 40%

Problem 1. Computing expected returns on a multiple-stock portfolio A portfolio consists of three stocks A, B, and C. When the portfolio is formed, 40% is invested in stock A, 30% in stock B, and 30% in stock C. Beta of Stock 1 is 1.2, of stock 2 is 0.5, and of stock 3 is 1.5. The market risk premium is 2%. The risk-free rate is 0.1%. Compute expected return on the portfolio.

Problem 2. Risk in CAPM For a stock, the beta is 1.5. Idiosyncratic risk (SD) is 2%. Market risk is 1.5%. The risk-free risk is 0.1%. Compute the total risk (SD) of the stock.

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