(a) Determine the expected return of security X (b) To reduce the systematic risk of the portfolio, Anna is considering 3 securities to add to the portfolio. Security A has a beta of 0, security B has a beta of 0.5 and Security C has a beta of -0.3. Discuss which security will be most effective in reducing the portfolio’s systematic risk? How would portfolio expected return change (higher or lower) if you add this security?
(a) Determine the expected return of security X (b) To reduce the systematic risk of the portfolio, Anna is considering 3 securities to add to the portfolio. Security A has a beta of 0, security B has a beta of 0.5 and Security C has a beta of -0.3. Discuss which security will be most effective in reducing the portfolio’s systematic risk? How would portfolio expected return change (higher or lower) if you add this security?
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
Problem 1PS
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(a) Determine the expected return of security X
(b) To reduce the systematic risk of the portfolio, Anna is considering 3 securities to
add to the portfolio. Security A has a beta of 0, security B has a beta of 0.5 and
Security C has a beta of -0.3. Discuss which security will be most effective in
reducing the portfolio’s systematic risk? How would portfolio expected return
change (higher or lower) if you add this security?
Transcribed Image Text:Anna holds a portfolio comprising the following 3 stocks: X, Y and Z.
Amount $'000
Beta
2,000
1.3
1,000
1.0
500
0
Investment
Security X
Security Y
Security Z
Expected Return
10%
2%
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