Answer on Economics of Enterprise Question for hiral
a. If Mutual Fund A held equal amounts of 100 stocks, each of which had a beta of 1.0, and
Mutual Fund B held equal amounts of 10 stocks with betas of 1.0, then the two mutual funds
would both have betas of 1.0. Thus, they would be equally risky from an investor's
standpoint, assuming the investor's only asset is one or the other of the mutual funds.
b. If investors become more risk averse but rRF does not change, then the required rate of return
on high-beta stocks will rise and the required return on low-beta stocks will decline, but the
required return on an average-risk stock will not change.
c. An investor who holds just one stock will generally be exposed to more risk than an investor
who holds a portfolio of stocks, assuming the stocks are all equally risky. Since the holder of
the 1-stock portfolio is exposed to more risk, he or she can expect to earn a higher rate of
return to compensate for the greater risk.
d. There is no
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