I need help with trying to figure out the following:

Risk and Return

1) For this question, please assume that markets are efficient. BRIEFLY answer the following. Suppose that a risk-averse investor wants to form a well-diversified portfolio of ten stocks. How might the investor go about choosing those stocks? What factors are important in that choice?

2) You wish to form a portfolio of three companies such that the portfolio has a beta of 1.0. Stock A has a beta of 1.5. Stock B has a beta of 0.8. Stock C has a beta of 0.6. You currently have $50,000 invested in Stock A and you do not want to change that position. You have another $100,000 to invest.

a) What positions should you take in Stock B and Stock C?

b) Suppose that the risk-free rate is 4.5% and that the expected market return is 8.5%. What is the expected return on each of the three positions? What is the expected return on your portfolio?

3) The following graph depicts the expected returns and standard deviations of 5 different assets. You are a risk-averse investor who plans to invest in one (and only one) of those assets. You have no other information on the assets and no way to get additional information on them. Which assets would you definitely NOT choose? BRIEFLY explain your intuition. What investor-specific factor would help you determine which of the remaining assets you would choose? BRIEFLY explain.

4) You have $100,000 to invest and wish to invest $50,000 in each of two stocks. Assuming that you want to diversify as much as possible and that you have no other investments, how would you go about choosing the two companies? What company characteristics are important in the choice? Give an example of two companies that you might choose.

5) BRIEFLY discuss the implication(s) of using historical return data to estimate beta for a stock.