1. You have invested $1 million in a market portfolio of common stocks, and you want to add stock AAA or BBB that is worth $10,000 into the portfolio. AAA's standard deviation is 0.7800 and its beta is 0.95. BBB's standard deviation is 0.6500 and its beta is 1.2. Will the addition of AAA increase or decrease the risk of the portfolio? Why? How about the addition of BBB stock? (This is a conceptual question)

1. You have invested $1 million in a market portfolio of common stocks, and you want to add stock AAA or BBB that is worth $10,000 into the portfolio. AAA's standard deviation is 0.7800 and its beta is 0.95 . BBB's standard deviation is 0.6500 and its beta is 1.2 . Will the addition of AAA increase or decrease the risk of the portfolio? Why? How about the addition of BBB stock? (This is a conceptual question) 2. If we add more factors into the one-factor asset pricing model, what happens to the required rate of returns, increase or decrease? If the expected future cash flows of the financial securities remain the same, will that increase or decrease the current market price? Why