3. Portfolio risk and return

Ariel holds a $10,000 portfolio that consists of four stocks. Her investment in each stock, as well as each stocks beta, is listed in the following table:

Stock	Investment	Beta	Standard Deviation
Andalusian Limited (AL)	$3,500	1.00	15.00%
Zaxatti Enterprises (ZE)	$2,000	1.50	12.00%
Water and Power Co. (WPC)	$1,500	1.20	20.00%
Flitcom Corp. (FC)	$3,000	0.50	22.50%

Suppose all stocks in Ariels portfolio were equally weighted. Which of these stocks would contribute the least market risk to the portfolio?

Water and Power Co.

Zaxatti Enterprises

Andalusian Limited

Flitcom Corp.

Suppose all stocks in the portfolio were equally weighted. Which of these stocks would have the least amount of stand-alone risk?

Zaxatti Enterprises

Flitcom Corp.

Andalusian Limited

Water and Power Co.

If the risk-free rate is 4% and the market risk premium is 5.5%, what is Ariels portfolios beta and required return? Fill in the following table:

	Beta	Required Return
Ariels portfolio