Abigail Grace has a $$900,000$ fully diversified portfolio. She subsequently inherits ABC Com$-$ pany common stock worth $$100,000.$ Her financial adviser provided her with the following forecast information:

Risk and Return Characteristics Expected Monthly Returns

Standard Devlation of Monthly Returns

Original Portfolio ABC Company

$0\mathrm{.}67\%1\mathrm{.}25$

$2\mathrm{.}37\%2\mathrm{.}95$

The correlation coefficient of ABC stock returns with the original portfolio returns is $40.$ a$.$ The inheritance changes Grace's overall portfolio and she is deciding whether to keep the ABC stock. Assuming Grace keeps the ABC stock, calculate the: i$.$ Expected retumn of her new portfolio which includes the ABC stock ii$.$ Covariance of ABC stock returns with the original portfolio returns. iii.Standard deviation of her new portfolio; which includes the ABC stock. If Grace sells the ABC stock, she will invest the proceeds in risk$-$free government securities yielding $42\%$ monthly. Assuming Grace sells the ABC stock and replaces it with the emment sccurities, calculate the i$.$ Expected return of her new partfolio, which includes the govemment securities$.$ i$.$ Covariance of the government security returns with the original portfolio returns. iii. Standard deviation of her new portfolio, which includes the government securities$.$ c$.$ Determine whether the systematic risk of her new portfolio, which includes the goverament sccurities, will be higher or lower than that of her olzinal portfolio. On the basis of conversations with her husband, Grace is considering selling the $ $100,000$ of ABC stock and acquiring $5100,000$ of XYZ Company common stock instead. XYZ stock has the same expected return and standard deviation as ABC stock. Her husband comments, Ir doesn't matter whether you keep all of the ABC stock or replace it with $$100,000$ of XYZ stock." State whether her husband's comment is correct or incorect. Justify your response, e$.$ In a recent discussion with her financinl adviser, Grace commentcd, $""$If I just don't losc moncy in my portfolio, I will be satisfied." She wenl on $10$ say, "I am more afraid of losing money than $1$ am concerned about uchieving high retumns. i$.$ Describe one weakness of using standard deviation of returns as risk measure for Grace. ii$,$ Identify an altemnate risk measure that is more appropriate under the circumstances