P8–22 Betas and risk rankings You are considering three stocks—A, B, and C—for possible inclusion in your investment portfolio. Stock A has a beta of 0.80, stock B has a beta of 1.40, and stock C has a beta of -0.30.

a. Rank these stocks from the most risky to the least risky.

b. If the return on the market portfolio increased by 12%, what change would you expect in the return for each of the stocks?

c. If the return on the market portfolio decreased by 5%, what change would you expect in the return for each of the stocks?

d. If you believed that the stock market was getting ready to experience a significant decline, which stock would you probably add to your portfolio? Why?

e. If you anticipated a major stock market rally, which stock would you add to your portfolio? Why?