a. Suppose a stock has a beta of 1.3, the risk-free rate is 6.0%, and the market risk premium is 4.5%. If the stock's beta falls to 1.0 but the other two variables remain unchanged, by how much would the stock's required rate of return decline?

1. 0.62 2. 1.35 3. 0.88 4. 1.71 5. 2.28

b. A 2-stock portfolio that contains $40,000 of GE stock with a beta of 1.25 and $60,000 of Duke Energy stock with a beta of 0.60 would have a beta of 0.86. What would be the portfolio's beta, if the owner rebalanced the portfolio so that it contained $80,000 of GE and $20,000 of Duke Energy stock?

1. 0.91 2. 1.00 3. 0.77 4. 1.17 5. 1.12