You are putting together a portfolio made up of four different stocks however, you are considering two possible weightings.

Assets Beta First Portfolio Second Portfolio

A 2.30 8% 42%

B .09 8% 42%

C .45 42% 8%

D -1.70 42% 8%

a) what is the beta on each portfolio?

b) which portfolio is iskier?

c) if the risk-free rate of interest were 4.5 % and the market risk premium were 7% what rate of return would you expect to earn from each of the porfolios?

A) The Beta on the first portfolio is ......

The beta on the second portfolio is .....

B) Which portfolio is riskier?

a) The second portfolio because the beta is larger

b) The second portfolio because the beta is smaller

c) The first portfolio because the beta is larger

d) The first portfolio because the beta is smaller

C) if the risk free rate of interest were 4.5% and the market risk premium were 7% then the rate of return on the first portfolio is expected to be ....%

if the risk free rate of interest were 4.5% and the market risk premium were 7% then the rate of return on the second portfolio is expected to be ....%