1. You are a portfolio manager of a $4 million fund consisting of the following stocks:

Invested Amount Beta Expected Return

Bee-Bio-Tech Ltd. $ 750,000 1.90 12.5%

Iowe Bank Ltd. 1,250,000 0.75 6.75%

Electric Auto Ltd. 2,000,000 1.20 9.00%

Assure the risk-free rate is 3% and the market return is 8%

1. What return should you expect from the portfolio, based on the individual stocks expected return?
2. What return should you require from the portfolio, based on the individual stocks beta?

You are considering another stock, Pacific Petroleum, which has a stock beta of 2.3. If Pacific Petroleum has an expected return of 14%, should you buy this stock? Why or why not?