You have a portfolio with a standard deviation of 30% and an expected return of 18%. 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? Stock A Stock B Expected Return 15% 15% Standard Deviation 25% 20% Correlation with Your Portfolio's Returns 0.2 0.6 Standard deviation of the portfolio with stock A is 25.48%. (Round to two decimal places.) Standard deviation of the portfolio with stock B is 26.59%. (Round to two decimal places.) Which stock should you add and why? (Select the best choice below.) A. Add B because the portfolio is less risky when B is added. B. Add A because the portfolio is less risky when A is added. OC. Add either one because both portfolios are equally risky.
You have a portfolio with a standard deviation of 30% and an expected return of 18%. 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? Stock A Stock B Expected Return 15% 15% Standard Deviation 25% 20% Correlation with Your Portfolio's Returns 0.2 0.6 Standard deviation of the portfolio with stock A is 25.48%. (Round to two decimal places.) Standard deviation of the portfolio with stock B is 26.59%. (Round to two decimal places.) Which stock should you add and why? (Select the best choice below.) A. Add B because the portfolio is less risky when B is added. B. Add A because the portfolio is less risky when A is added. OC. Add either one because both portfolios are equally risky.
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 25P
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Transcribed Image Text:You have a portfolio with a standard deviation of 30% and an expected return of 18%. 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?
Stock A
Stock B
Expected
Return
15%
15%
Standard
Deviation
25%
20%
Correlation with
Your Portfolio's Returns
XXX
0.2
0.6
Standard deviation of the portfolio with stock A is 25.48%. (Round to two decimal places.)
Standard deviation of the portfolio with stock B is 26.59 %. (Round to two decimal places.)
Which stock should you add and why? (Select the best choice below.)
A. Add B because the portfolio is less risky when B is added.
B. Add A because the portfolio is less risky when A is added.
OC. Add either one because both portfolios are equally risky.
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