1. With the limited information below on monthly returns for a stock and the S&P 500 market index, what would you guess is this stock's CAPM beta?

Month 1: Stock -7.4%, Market -2.0%

Month 2: Stock -4.0%, Market -4.0%

Month 3: Stock +2.2%, Market +0.5%

Month 4: Stock +13.4%, Market +10.8%

Group of answer choices:

a) Beta is greater than one

b) Beta is one

c) Beta is between zero and one

d) Beta is zero

e) Beta is negative

2. A stock has a correlation with the S&P 500 of 0.85. The standard deviation of the stock's returns is 27%. The standard deviation of the S&P 500 is 16%. The S&P 500 is expected to return 7% over the next year, and one-year treasury bills are yielding 1.7%. What return does a diversified investor require to invest in this stock? Group of answer choices:

a) 6.6%

b) 7.2%

c) 8.9%

d) 9.3%

e) 10.5%

f) 12.2%