Ally holds a RM200,000 portfolio consisting of the following stocks. The portfolio's beta is 0.875.

Stok [Stock] Pelaburan [Investment] (RM) Beta

A 50,000 0.50

B 50,000 0.80

C 50,000 1.00

D 50,000 1.20

Total 200,000

1. If Ally replaces Stock A with another stock E, which has a beta of 1.50, what will the portfolio's new beta be?

2. Company A has a beta of 0.70, while Company B's beta is 1.20. The required return on the stock market is 11.00%, and the risk-free rate is 4.25%. What is the difference between A's and B's required rates of return?

3. Suppose you hold a portfolio consisting of a RM10,000 investment in each of 8 different common stocks. The portfolios beta is 1.25. Now suppose you decided to sell one of your stocks that has a beta of 1.00 and to use the proceeds to buy a replacement stock with a beta of 1.35. What would the portfolios new beta be?

4. If a companys beta were to double, would its required return also double? Explain

5. A stock had a 8.47% return last year, a year when the overall stock market declined. Does this mean that the stock has a negative beta and thus very little risk if held in a portfolio? Explain