Question
You have a portfolio with a standard deviation of 21% and an expected return of 15%. You are considering adding one of the two stocks
You have a portfolio with a standard deviation of 21% and an expected return of 15%. You are considering adding one of the two stocks in the following table. If after adding the stock you will have 20% of your money in the new stock and 80% of your money in your existing portfolio, which one should you add?
Expected Return | Standard Deviation | Correlation with Your Portfolio's Returns | |
Stock A | 14% | 25% | 0.4 |
Stock B | 14% | 18% | 0.5 |
Part 1
Standard deviation of the portfolio with stock A is
(Round to two decimal places.)
Part 2
Standard deviation of the portfolio with stock B is
(Round to two decimal places.)
Part 3
Which stock should you add and why?(Select the best choice below.)
A.)Add Upper B because the portfolio is less risky when Upper B is added.
Add B because the portfolio is less risky when B is added.
B.)Add Upper A because the portfolio is less risky when Upper A is added.
Add A because the portfolio is less risky when A is added.
C.) Add either one because both portfolios are equally risky
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