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8 Anne Grace has a $900000 diversified portfolio. She subsequently inherits ABC Company common stock worth $100 000. Her financial adviser provided her with the

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Anne Grace has a $900000 diversified portfolio. She subsequently inherits ABC Company common stock worth $100 000. Her financial adviser provided her with the following estimates: The correlation coefficient of the ABC stock returns with the original returns is 0.40. Please answer with monthly expected returns and monthly standard deviations: you do not need to annualise the expected returns or standard deviations. In a recent discussion with her financial advisor, Grace commented, 'If I just don't lose money in my portfolio, I will be satisfied.' She went on to say, 'I am more afraid of losing money than I am concerned about achieving high returns.' Describe one weakness of using standard deviation of returns as a risk measure for Grace. Standard deviation does not measure the total risk of the portfolio. If returns are not symmetric, standard deviation does not reflect differences in positive and negative price movements. Standard deviation does not measure the risk of the individual asset

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