Please respond to the 2 questions i answered.

8-6 A stock had a 12% return last year, a year when the overall stock market declined. Does this mean that the stock has a negative beta and thus very little risk if held in a portfolio? Explain.

- When a stock has negative beta, it means its returns would have to logically be expected to go up in the future when the other stocks' returns were supposedly falling. Assuming that in one year the stock's return increase when the market declined, it doesn't mean that that the stock has a negative beta. Even when the stock's beta is positive, a stock each year must counter the overall market. So, it doesn't really mean that if a stock has negative beta, there is a very little risk if it were to be held in a portfolio.

8-4 Is it possible to construct a portfolio of real-world stocks that has a required return equal to the risk-free rate? Explain

Hypothetically speaking, if you are able to construct the portfolio that has a beta equal to Zero, the answer would be yes. However, this isn't something that is likely to be done, nor do I think this is something that an investor would care to create. This portfolio would have little to no exposure to the market and would be expected to equal the same as the risk-free rate. Higher beta portfolios would bring in a much better return but at a much higher risk as well. The lack of diversity in this portfolio would perform much worse over time. It may be safe for a short period of time, although in the long run, you would potentially miss out on lots of growth.