1. use the following information to answer the questions.

Security	Beta	Expected return
market	1.0	10.0%
risk-free	0.0	5.0%
Stock A	0.6	( )%
Stock B	( )	12.5%

a. Figure out the market risk premium.

b. what is the expected return on stock A?

c. what is the beta for Stock B?

d. Total risk consists of systematic risk and unsystematic risk.

i) which risk could be eliminated by diversification strategy? Total risk, systematic or unsystematic risk?

ii) Which risk will be priced? Total risk, systematic or unsystematic risk?

iii) expected return= risk- free interest rate + ( ) risk * market risk premium.