Suppose you have the following information:

$($a$)$ What is the volatility of a portfolio $AB$ which is comprised of $$4,000$ invested in stock $A$

and $$1,000$ in stock $B?$

$(6$ marks$)$

$($b$)$ Assume Stock B is correctly priced according to the CAPM, what is Stock B$\text{'}$s beta? What

is the risk$-$free rate?

$(6$ marks$)$

$($c$)$ In $2018,$ around $15\%$ of the listed firms around the world choose to use no debt. Is this

zero$-$leverage policy consistent with the predictions from the classical theories of capital

structure?

$(13$ marks$)$