1. Stock A has an expected return of 12 percent, a beta of 1.2, and a standard deviation of 20 percent. Stock B has an expected return of 10 percent, a beta of 1.2, and a standard deviation of 15 percent. Portfolio P has $900,000 invested in Stock A and $300,000 invested in Stock B. The correlation between Stock A's returns and Stock B's retums is zero (that is, r = 0). Which of the following statements is most correct? * a) Portfolio P's expected retum is 11.5 percent. b) Portfolio P's standard deviation is 18.75 percent. c) Portfolio P's beta is less than 1.2. d) Statements a and b are correct 2. A fund manager is holding the following 4 stocks. The risk-free rate is 5 percent and the market risk premium is also 5 percent. If the manager sells half of her investment in Stock 2 ($280 million) and puts the money in Stock 4, by how many percentage points will her portfolio's required return increase? 5 points Stock 1 Amount Invested $300 million 5 60 million 320 million 230 million Beta 1.2 1.4 2 3 a) 0.40% b) 0.22% C) 2.00% d) 0.20%