Question
The market portfolio has an expected return of 10% p.a. and a standard deviation of returns of 20%. The risk-free rate of return is 5%
The market portfolio has an expected return of 10% p.a. and a standard deviation of returns of 20%. The risk-free rate of return is 5% p.a.
An investor is currently holding a market index fund. She is deciding whether to add any of the following stocks to her current holding and has been provided with the following data:
Analysts' Forecast Return
Standard Deviation
Beta
Stock A
10%
21%
0.9
Stock B
11%
24%
1.2
Stock C
12%
27%
1.5
Stock D
13%
35%
2.0
Advise which, if any, of the stocks the investor should add to her portfolios:
Select one:
a.Stock D
b.Stock A
c.Both Stocks C and D.
d.Stock C
e.Stock B
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