ANSWER AND SHOW WORK!

1. You hold a diversified portfolio consisting of $10,000 in each of 20 different common stocks (i.e., your total investment is $200,000). The portfolio beta is 1.2. You have decided to sell one of your stocks whose beta is 0.7 for $10,000 (You may refer to this stock as "stock 2"). Calculate the beta of the remaining portfolio of 19 stocks.

2. You hold a diversified portfolio consisting of $10,000 in each of 20 different common stocks (i.e., your total investment is $200,000). The portfolio beta is 1.2. You have decided to sell one of your stocks, which has a beta of 0.7 for $10,000. You plan to use the proceeds to purchase another stock which has a beta of 2.5. What will be the beta of the new portfolio?

3. Given the following information, use the CAPM to calculate the beta of the stock. The required rate of return of the stock is 12%, Risk free interest rate is 4% and market return is 10%.