Applying the capital-asset pricing model approach, compute the required rate of return for each of the following stocks. Assume a risk-free rate of 0.05 and an expected return for the market portfolio of 0.15.

STOCK

A

B

C

D

BETA

2.0

1.0

-0.5

0

(a) If you could only invest in one of these stocks, justify which stock you would choose.

(b) Suggest which type of stock does stock C belong to. Explain your answer.