20. 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) 1.074

b) 2.025

c) 3.865

d) 4.2

e) None of the above

16. The risk-free rate is 5 percent. Stock A has a beta 1.2 and Stock B has a beta 1.4. Stock A has a required return of 11 percent. What is Stock Bs required return? *

a) 12.0%

b) 13.4%

c) 14.4%

d) 15.4%

e) None of the above

13. Life Inc's stock has an expected return of 13%, a beta of 1.25, and is in equilibrium. If the risk-free rate is 6.00%, what is the market risk premium? *

a) 5.6%

b) 6.5%

c) 5.8%

d) 4.5%

e) None of the above

11. 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