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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