14. Assume that the risk-free rate is 5% and the expected return on the market is 12%. What is the required rate of return on stock with a beta of 0.8? *

a) 10.6%

b) 14.6%

c) 12%

d) 9.6%

e) None of the above

15. Suppose you held a diversified portfolio consisting of 10 different common stocks, investing $500 in each stock. The portfolios beta is 1.9. Now suppose you decided to sell one of the stocks in your portfolio with a beta of 0.8 for $500 and use the proceeds to buy another stock with a beta of 1.25. What would your portfolios new beta be? *

a) 1.9448

b) 1.0745

c) 2.0254

d) 4.2

e) None of the above

16. 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 As returns and Stock Bs returns is zero (that is, r = 0). Which of the following statements is most correct? *

a) Portfolio Ps expected return is 11.5 percent.

b) Portfolio Ps standard deviation is 18.75 percent.

c) Portfolio Ps beta is less than 1.2.

d) Statements a and b are correct.

e) None of the above