1) Security A has an expected return of 7 percent, a standard deviation of expected returns of 35 percent, a correlation coefficient with the market of 0.3, and a beta coefficient of -1.5. Security B has an expected return of 12 percent, a standard deviation of returns of 10 percent, a correlation with the market of 0.7, and a beta coefficient of 1.0. Which security is riskier? Why? [2] 2) Stocks A and B have the following historical returns: a) Calculate the average rate of return for each stock during the period 1998 through 2002. [2] b) Assume that someone held a portfolio consisting of 50 percent of Stock A and 50 percent of Stock B. What would have been the realized rate of return on the portfolio in each year from 1998 through 2002? What would have been the average return on the portfolio during this period? [2] c) Calculate the standard deviation of returns for each stock and for the portfolio. [2] d) Calculate the coefficient of variation for each stock and for the portfolio. [2] e) If you are a risk-averse investor, would you prefer to hold Stock A, Stock B, or the portfolio? Why? [2]