The standard deviation of the market index portfolio is 20%. Stock A has a beta of 1.5
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The standard deviation of the market index portfolio is 20%. Stock A has a beta of 1.5 and a residual standard deviation of 30%.
a. What would make for a larger increase in the stock’s variance: an increase of .15 in its beta or an increase of 3% in its residual standard deviation?
b. An investor who currently holds the market-index portfolio decides to reduce the portfolio allocation to the market index to 90%, and to invest 10% in stock A.
Which of the changes in
(a) will have a greater impact on the portfolio’s standard deviation?
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Related Book For
Essentials Of Investments
ISBN: 9780697789945
8th Edition
Authors: Zvi Bodie, Alex Kane, Alan J. Marcus
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