Part 2:You did some additional research, and also found the following values for eachstock’sbeta coefficient:Stock AStock BBeta Coefficient0.71.4Other current information is as follows:- Current Risk-free Rate: 5%- Current Market Rate: 12%1.What type of risk are we now considering?
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2.What is the current Market Risk Premium?
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3.What is the required return for each stock suggested by CAPM?
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4.Will diversification reduce the type of risk identified in #1 above?
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5.Is there anything that can help to reduce this type of risk in a portfolio of stocks?If so,what.
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6.Suppose that you invest $1,000 in Stock A, $1,500 in Stock B, and $2,500 in Stock Cthat has a beta of 2.0. Find your portfolio’s beta and required rate of return.
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