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Use the following information to answer questions 7-147-6. You are considering several securities for potential investment. Your investment advisor has provided you with the following probability distributions for the returns on these securities under different possible economic climates for the coming year. The betas for each firm are based on the Capital Asset Pricing Model and measure the non-diversifiable risk of each investment. Probability Zumwalt Corp. Andy's Bagels Gallagher Pet Supplies Economy Recession .10 5% 18% -10% .25 10 15 0 Below Average Average Above Average .30 15 10 10 25 20 15 20 Boom .10 25 18 30 Beta 1.5 1.0 .5 7-3. 7-4. If you will only hold one security in your portfolio (i.e., you are not diversified), which of the investments is riskiest? (Calculate the coefficient of variation.) If the risk free rate of return is 3% and the required return on the market is 10%, what is the required return for each of the companies above using CAPM? If you invest equal amounts of money in each of the three securities, what is the beta of the resulting portfolio? 7-5