Grace has a $900K fully diversified portfolio. She inherits ABC company common stock worth $100K. Her advisor provided her with the following forecast info:

Original portfolio Expected Monthly Return = 0.67% Std. Deviation of Monthly Returns = 2.37%

ABC Company Expected Monthly Return = 1.25% Std. Deviation of Monthly Returns = 2.95%

The correlation with ABC company and the original portfolio is 0.40.

(A) Assuming Grace keeps ABC stock as an addition to her portfolio, what is the expected return of the new portfolio with ABC stock, the covariance of ABC stock and the original portfolio returns and the standard deviation of the new portfolio with ABC stock ?

(B) If Grace sells ABC stock, she will invest the proceeds in a risk-free security yielding 5.158% yearly. Assuming she does this, calculation the expected return of the new portfolio with the securities, the covariance of the securities with the original portfolio, and the standard deviation of th new portfolio with the securities.

(C) Determine whether the systematic risk of the new portfolio, which includes the risk-free security, will be higher or lower than her original portfolio.