1. According to the following information, calculate the expected return of company A by using CAPM: Beta of company A = 1.5, Risk-free rate = 3%, Market risk premium = 4%.

2. You have a portfolio consisting solely of stock A and stock B :

Stock Expected return Weight (>0)

A 10% ?

B 20% ?

The portfolio has an expected return of 17.2%. What is the portfolio weight of stock B?

3. A Diversification will normally reduce the riskiness of a portfolio of stocks. (True or False)