Question: Use the information in the table to answer (a) - (c) below. Stock A B C D Standard deviation 4% 9% 11% 13% Beta .8

Use the information in the table to answer (a) - (c) below.

Stock A B C D

Standard deviation 4% 9% 11% 13%

Beta .8 1.1 1.4 1.3

(a) Which stock will have the highest risk premium for an investor with a diversified portfolio?

(b) Suppose you have $10,000 invested in these 4 stocks as follows: $2000 in A, $3000 in B, $4000 in C and $1000 in D. What is the beta of your portfolio?

(c) If the market return is expected to be 12 percent and the risk-free rate is 5 percent, what is the expected return on your portfolio?

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