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 1.11.4

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

Stock A B C D

Standard deviation 4% 9% 11%13%

Beta .8 1.11.4 1.3

(a)Which stock will have the highest risk premium for an investor with a diversified portfolio? Explain clearly; points are for your explanation. (10 points)

(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? Show all your work and clearly identify your final answer.(20 points)

(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? Show all your work and clearly identify your final answer.(20 points)

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