Question
You have a portfolio with a standard deviation of 26 % and an expected return of 17% . You are considering adding one of the
You have a portfolio with a standard deviation of 26 % and an expected return of 17% . 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 of your money in your existing portfolio, which one should you add?
Stock A expected return 14% standard deviation 22% Correlation with Your Portfolio's Returns 0.2
Stock B expected return 14% standard deviation 17% Correlation with Your Portfolio's Returns 0.5
\ 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?
A.
Add A because the portfolio is less risky when A is added.
Your answer is correct.
B.
Add B because the portfolio is less risky when B is added.
C.
Add either one because both portfolios are equally risky.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started