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b) You have $10,000 of capital invested in a stock portfolio earning 5%. You can either keep your portfolio intact or replace it entirely with
b) You have $10,000 of capital invested in a stock portfolio earning 5%. You can either keep your portfolio intact or replace it entirely with only one of the following stocks. All stocks are identical except for their expected returns and have the same risk as your current stock portfolio. Should you replace your portfolio for one of the stocks listed below? If this is the case, which stock should you choose? What is the opportunity cost (i.e., the cost of capital) of your investment? [3 marks] Stock Expected Return ABC 3% DEF 6% XYZ 7% Initial Investment $1,000 $1,000 $1,000 Replace Portfolio (circle correct answer): YES NO If you decide to replace your portfolio, which stock should you choose and what is the opportunity cost of your investment? Selected Stock: Cost of Capital (in 3
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