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You have a portfolio with a standard deviation of 22% and an expected return of 16%. You are considering adding one of the two stocks

You have a portfolio with a standard deviation of 22% and an expected return of 16%. You are considering adding one of the two stocks in the following table. If after adding the stock you will have 25% of your money in the new stock and 75% of your money in your existing portfolio, which one should you add?

Expected

Return

Standard

Deviation

Correlation with

Your Portfolio's Returns

Stock A

16%

22%

0.2

Stock B

16%

18%

0.7

Standard deviation of the portfolio with stock A is?%. (Round to two decimal places.)

Standard deviation of the portfolio with stock B is? %. (Round to two decimal places.)

Which stock should you add and why?(Select the best choicebelow.)

A. Add A because the portfolio is less risky when A is added.

B. Add B because the portfolio is less risky when B is added.

C. Add either one because both portfolios are equally risky.

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