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Question 1: Is it possible for a risky asset to have a beta of zero? Explain why or why not. Question 2: Your client, Smith,

Question 1: Is it possible for a risky asset to have a beta of zero? Explain why or why not.

Question 2: Your client, Smith, owns a portfolio that has $3,140 invested in Aardvark common stock and $4,300 invested in Bonobo common stock. The expected return on Aardvark common stock is 9% annually and on Bonobo common stock is 14% annually. What is the expected return on Smith's portfolio?

Question 3: Another client, Walker, owns a portfolio invested 15% in Qantas stock (beta = 0.78), 25% in Rooster stock (beta = .87), 40% in Salamander stock (beta = 1.13), and 20% in Tiger stock (beta = 1.45). What is the portfolio beta?

Question 4: Uniform stock has a beta of 1.14, the expected return for the market is 10.9 percent, and the risk-free rate of return is 3.6 percent. What is the expected rate of return for Uniform stock?

Question 5: Use the following information:

State of the Economy Probability of Occurrence Return on Stock A, in state Return on Stock B, in state Return on Stock C in state
Boom .60 +0.18 +0.04 +0.31
Bust .40 +0.03 +0.16 -0.11

5(a): What is the expected rate of return on an equally weighted portfolio of these three stocks?

5(b): What is the variance of a portfolio invested 20 percent on Stock A, 20 percent in Stock B, and 60 percent in Stock C?

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