Currently, the market return is 12%, and the risk-free rate is at 5%.

There are a number of portfolios in which you are considering investing. Using the following information, provide an answer for the next 4 questions.

Investment (Beta): A (1.3) B (1.0) C (0.70) D (0.0) E (2.5)

Which investment is most risky? Least risky?

pt 2: Use the capital asset pricing model to find the required return on each of the investments.

pt 3: Using your findings in part 2, draw the security market line.

On the basis of your findings in part 3, what relationship exists between risk and return? Carefully explain.

Consider a portfolio composed of investments A to E, with equal shares .(i.e. 20% each one). What would be the beta of that portfolio?