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Explain how you reached the. 1 answer below » Directions: Answer the following five questions on a separate document.

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Directions: Answer the following five questions on a separate document. Explain how you reached the. 1 answer below » Directions: Answer the following five questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your assignment using the assignment link in the course shell. Each question is worth five points apiece for a total of 25 points for this homework assignment. 1. You are considering investing in one of the these three stocks: Stock A B C Standard Deviation Beta 20% 0.59 10% 0.61 12% 1.29 ???If you are a strict risk minimizer, you would choose Stock ____ if it is to be held in isolation and Stock ____ if it is to View complete question » Directions: Answer the following five questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your assignment using the assignment link in the course shell. Each question is worth five points apiece for a total of 25 points for this homework assignment. 1. You are considering investing in one of the these three stocks: Stock A B C Standard Deviation Beta 20% 0.59 10% 0.61 12% 1.29 ???If you are a strict risk minimizer, you would choose Stock ____ if it is to be held in isolation and Stock ____ if it is to be held as part of a well-diversified portfolio. Document Preview: Directions: Answer the following five questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your assignment using the assignment link in the course shell. Each question is worth five points apiece for a total of 25 points for this homework assignment. 1. You are considering investing in one of the these three stocks: Stock A B C Standard Deviation Beta 20% 0.59 10% 0.61 12% 1.29 ???If you are a strict risk minimizer, you would choose Stock ____ if it is to be held in isolation and Stock ____ if it is to be held as part of a well-diversified portfolio. a. A; B. b. B; A. c. C; A. d. C; B. e. A; A. 2. Your friend is considering adding one additional stock to a 3-stock portfolio, to form a 4-stock portfolio. She is highly risk averse and has asked for your advice. The three stocks currently held all have b = 1.0, and they are perfectly positively correlated with the market. Potential new Stocks A and B both have expected returns of 15%, are in equilibrium, and are equally correlated with the market, with r = 0.75. However, Stock A’s standard deviation of returns is 12% versus 8% for Stock B. Which stock should this investor add to his or her portfolio, or does the choice not matter? a. Stock A. b. Stock B. c. Neither A nor B, as neither has a return sufficient to compensate for risk. d. Add A, since its beta must be lower. e. Either A or B, i.e., the investor should be indifferent between the two. 3. Which of the following is NOT a potential problem when estimating and using betas, i.e., which statement is FALSE? a. Sometimes, during a period when the company is undergoing a change such as toward more leverage or riskier assets, the calculated beta will be drastically different from the “true” or “expected future” beta. b. The beta of an “average stock,” or “the market,” can change over time, sometimes drastically. c. Sometimes the past data used to calculate beta do not reflect… Attachments: Q.-Attachment….docx View less » Sep 11 2015 03:41 PM


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