Answer the following questions. Show your work or briefly state your reasons. Credit will not be given for any unsupported answer -- even if it is correct. 1. Assume that the risk-free rate is 3.5% and the market risk premium is 4%. What is the required return for the overall stock market? What is the required rate of return on a stock with a beta of 0.8? 2. Beale Manufacturing Company has a beta of 1.1, and Foley Industries has a beta of 0.30. The required return on an index fund that holds the entire stock market is 11%. The risk-free rate of interest is 4.5%. By how much does Beale's required return exceed Foley's required return? 3. Consider the following information for Stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock A B C Expected Return Standard Deviation Beta 9.55% 15% 0.9 10.45 12.70 15 1.1 15 1.6 Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 5.5%, and the market is in equilibrium. (That is, required returns equal expected returns.) a. What is the market risk premium (rM TRF)? b. What is the beta of Fund P? c. What is the required return of Fund P? d. Would you expect the standard deviation of Fund P to be less than 15%, equal to 15%, or greater than 15%? Explain.