Based on the following information for Stock A and Stock B, which stock would you add to a market index portfolio that is well diversified? Assume the risk- free rate is 5% and the market risk premium is 10%. Stocks E(r) Standard Deviation Beta 15% 1.5 12% 0.6 A B 20% 25% O a. Stock B b. Both Stock A and Stock B c. Stock A d. Neither Stock A or Stock B.
Based on the following information for Stock A and Stock B, which stock would you add to a market index portfolio that is well diversified? Assume the risk- free rate is 5% and the market risk premium is 10%. Stocks E(r) Standard Deviation Beta 15% 1.5 12% 0.6 A B 20% 25% O a. Stock B b. Both Stock A and Stock B c. Stock A d. Neither Stock A or Stock B.
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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![Based on the following information for Stock A and Stock B, which stock would you add to a market index portfolio that is well diversified? Assume the risk-
free rate is 5% and the market risk premium is 10%.
Stocks
E(r)
Standard Deviation Beta
15%
1.5
12%
0.6
A
B
20%
25%
a. Stock B
b. Both Stock A and Stock B
C. Stock A
d. Neither Stock A or Stock B.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F354d039c-22dd-43af-a9f8-7f89adaca7b5%2Ffb6db455-0707-44e4-b011-ac570f2b6109%2F7p01pnk_processed.png&w=3840&q=75)
Transcribed Image Text:Based on the following information for Stock A and Stock B, which stock would you add to a market index portfolio that is well diversified? Assume the risk-
free rate is 5% and the market risk premium is 10%.
Stocks
E(r)
Standard Deviation Beta
15%
1.5
12%
0.6
A
B
20%
25%
a. Stock B
b. Both Stock A and Stock B
C. Stock A
d. Neither Stock A or Stock B.
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