Which of the following is most likely to occur as you add randomly selected stocks to your portfolio, which currently consists of 3 average stocks?
The diversifiable risk of your portfolio will likely decline, but the expected market risk should not change.
The expected return of your portfolio is likely to decline.
The diversifiable risk will remain the same, but the market risk will likely decline.
Both the diversifiable risk and the market risk of your portfolio are likely to decline.
The total risk of your portfolio should decline, and as a result, the expected rate of return on the portfolio should also decline.
Company A has a beta of 0.70, while Company B’s beta is 1.20. The required return on the stock market is 11.00%, and the risk-free rate is 4.25%. What is the difference between A’s and B’s required rates of return?
a. 2.75%
b. 2.89%
c. 3.05%
d. 3.21%
e. 3.38%