Investment in portfolio A has a standard deviation of 9%, while investment in portfolio B has a standard deviation of 14%. In order to tolerate the increased risk, what would you as an investor expect?

a. A higher expected return for portfolio A.

b. A higher expected return for portfolio B.

c. An equal return for either portfolio A or portfolio B.

d. Avoidance of portfolio B.

The required rate of return for an investment can be calculated from the capital asset pricing model as follows:

a. Use only the return on 3-month Treasury bills to determine the required return.

b. Use the beta of the investment to determine the required return.

c. Use the risk-free rate, plus the investment’s beta times a premium for systematic risk.

d. Use the risk-free rate, plus the investment’s beta times a premium for diversifiable risk.