Use the information in the table to answer (a) - (c) below.

StockABCD

Standarddeviation4%9%11%13%

Beta.81.11.41.3

(a)Which stock will have the highest risk premium for an investor with a diversified portfolio? Explain clearly; points are for your explanation. (10 points)

(b)Suppose you have $10,000 invested in these 4 stocks as follows: $2000 in A, $3000 in B, $4000 in C and $1000 in D. What is the beta of your portfolio?

(c)If the market return is expected to be 12 percent and the risk-free rate is 5 percent, what is the expected return on your portfolio?