You have 10,000 invested in a 2-stock portfolio. Stock X has a beta coefficient of 0.9 and a 35% standard deviation. Stock Y has a beta coefficient of 1.2 and a 25% standard deviation. The risk-free rate is 6%, and the market risk premium is 5%.

1. Which stock is riskier for a diversified investor? Explain. (5 points)

2. Calculate each stocks required rate of return. (5 points)

3. Calculate the required return of a portfolio that has 7,500 invested in Stock X and 2,500 invested in Stock Y. (5 points)

4. If the market risk premium increased to 6%, which of the two stocks would have the larger increase in its required return? (5 points)