The following information is relevant for Questions 7-10:

	Stock A	Stock B
Investment	$3,000	$7,000
Expected return	16%	9%
Standard deviation	50%	40%
Correlation between A and B	0.30

1)The expected return and standard deviation of a portfolio of Stock A and Stock B are:

		A)expected return = 13.9%; standard deviation = 40.3%
		B)expected return = 11.1%; standard deviation = 35.5%
		C)expected return = 11.1%; standard deviation = 33.7%
		D)expected return = 13.9%; standard deviation = 35.5%

2)If the correlation between the returns of Stocks A and B was 0.80 instead of 0.30, which of the following statements would be true?

A)the expected return on the portfolio would not change, and the standard deviation would increase

B)the expected return on the portfolio would increase, and the standard deviation would increase

C)the expected return on the portfolio would not change, and the standard deviation would decrease

D)the expected return on the portfolio would decrease, and the standard deviation would increase

3)If Stock B is replaced by Treasury bills yielding 3%, the expected return and standard deviation of the portfolio are:

		A)expected return = 12.1%; standard deviation = 15.0%
		B)expected return = 12.1%; standard deviation = 35.0%
		C)expected return = 6.9%; standard deviation = 50.0%
		D)expected return = 6.9%; standard deviation = 15.0%

4)Suppose that Stock A has a beta of 2.2, and Stock B has a beta of 0.25. The risk-free rate is 3%, and the return on the S&P 500 is 10%. Is either stock fairly priced, according to the CAPM?

		A)Stock A is overpriced, and Stock B is underpriced
		B)Stock A is overpriced, and Stock B is overpriced
		C)Stock A is underpriced, and Stock B is overpriced
		D)Stock A is underpriced, and Stock B is underpriced