You have a portfolio with a standard deviation of 20% 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 30% of your money in the new stock and 70% of your money in your existing portfolio, which one should you add? Standard deviation of the portfolio with stock A is 16.46%. (Round to two decimal places.) Standard deviation of the portfolio with stock B is 18.19%. (Round to two decimal places.) Which stock should you add and why? (Select the best choice below.) 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. Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Stock A Stock B Expected Return 14% 14% Standard Deviation 21% 18% Correlation with Your Portfolio's Returns 0.2 0.7 - X

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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You have a portfolio with a standard deviation of 20% 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 30% of your money in the new
stock and 70% of your money in your existing portfolio, which one should you add?
Standard deviation of the portfolio with stock A is
Standard deviation of the portfolio with stock B is 18.19 %. (Round to two decimal places.)
Which stock should you add and why? (Select the best choice below.)
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.
Data table
16.46 %. (Round to two decimal places.)
(Click on the following icon in order to copy its contents into a spreadsheet.)
Stock A
Stock B
Expected Return
14%
14%
Standard Deviation
21%
18%
Correlation with Your
Portfolio's Returns
0.2
0.7
- X
Transcribed Image Text:You have a portfolio with a standard deviation of 20% 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 30% of your money in the new stock and 70% of your money in your existing portfolio, which one should you add? Standard deviation of the portfolio with stock A is Standard deviation of the portfolio with stock B is 18.19 %. (Round to two decimal places.) Which stock should you add and why? (Select the best choice below.) 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. Data table 16.46 %. (Round to two decimal places.) (Click on the following icon in order to copy its contents into a spreadsheet.) Stock A Stock B Expected Return 14% 14% Standard Deviation 21% 18% Correlation with Your Portfolio's Returns 0.2 0.7 - X
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