25. Explain why the risk premium of a stock does not depend on its diversifiable risk.

2. Suppose a market portfolio has an expected return of 10% and a volatility of 20%, while Microsofts stock has a volatility of 30%: Answer A and B

a. Given its higher volatility, should we expect Microsoft to have an equity cost of capital that is higher than 10%?

b. What would have to be true for Microsofts equity cost of capital to be equal to 10%?