1. Determine whether the beta of her new portfolio, which includes the government securities, will be higher or lower than the beta of her original portfolio. (hint: no calculation is required)

Abigail Grace has a $900,000 fully diversified portfolio. She subsequently inherits ABC Company common stock worth $100,000. Her financial adviser provided her with the following estimates: Original Portfolio ABC Company Expected Return 0.67% 1.25% Standard Deviation 2.37% 2.95% The correlation coefficient of ABC stock returns with the original portfolio return is 0.4