You have a portfolio with a standard deviation of 29% and an expected return of 19%. 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? Expected Return Standard Deviation Correlation with Your Portfolio's Returns Stock A 16% 16% 23% 0.4 Stock B 16% 0.5 Standard deviation of the portfolio with stock A is%. (Round to two decimal places.) Standard deviation of the portfolio with stock B is %. (Round to two decimal places.) Which stock should you add and why? (Select the best choice below.) O A. Add B because the portfolio is less risky when B is added. O B. Add A since the portfolio is less risky when A is added. O C. Add either one because both portfolios are equally risky.
You have a portfolio with a standard deviation of 29% and an expected return of 19%. 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? Expected Return Standard Deviation Correlation with Your Portfolio's Returns Stock A 16% 16% 23% 0.4 Stock B 16% 0.5 Standard deviation of the portfolio with stock A is%. (Round to two decimal places.) Standard deviation of the portfolio with stock B is %. (Round to two decimal places.) Which stock should you add and why? (Select the best choice below.) O A. Add B because the portfolio is less risky when B is added. O B. Add A since the portfolio is less risky when A is added. O C. Add either one because both portfolios are equally risky.
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
Related questions
Question
100%
![You have a portfolio with a standard deviation of 29% and an expected return of 19%. 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?
Expected
Return
Standard
Correlation with
Deviation
Your Portfolio's Returns
Stock A
16%
23%
0.4
Stock B
16%
16%
0.5
Standard deviation of the portfolio with stock A is
%. (Round to two decimal places.)
Standard deviation of the portfolio with stock B is
%. (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 since the portfolio is less risky when A is added.
C. Add either one because both portfolios are equally risky.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa60cc74a-f41c-44de-8941-1a7cf1dfd109%2F3d070a7d-8153-45d9-babd-eee972e6a854%2F08j6vlc_processed.png&w=3840&q=75)
Transcribed Image Text:You have a portfolio with a standard deviation of 29% and an expected return of 19%. 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?
Expected
Return
Standard
Correlation with
Deviation
Your Portfolio's Returns
Stock A
16%
23%
0.4
Stock B
16%
16%
0.5
Standard deviation of the portfolio with stock A is
%. (Round to two decimal places.)
Standard deviation of the portfolio with stock B is
%. (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 since the portfolio is less risky when A is added.
C. Add either one because both portfolios are equally risky.
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
![Essentials Of Investments](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781260013924/9781260013924_smallCoverImage.jpg)
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
![FUNDAMENTALS OF CORPORATE FINANCE](https://www.bartleby.com/isbn_cover_images/9781260013962/9781260013962_smallCoverImage.gif)
![Financial Management: Theory & Practice](https://www.bartleby.com/isbn_cover_images/9781337909730/9781337909730_smallCoverImage.gif)
![Essentials Of Investments](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781260013924/9781260013924_smallCoverImage.jpg)
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
![FUNDAMENTALS OF CORPORATE FINANCE](https://www.bartleby.com/isbn_cover_images/9781260013962/9781260013962_smallCoverImage.gif)
![Financial Management: Theory & Practice](https://www.bartleby.com/isbn_cover_images/9781337909730/9781337909730_smallCoverImage.gif)
![Foundations Of Finance](https://www.bartleby.com/isbn_cover_images/9780134897264/9780134897264_smallCoverImage.gif)
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
![Fundamentals of Financial Management (MindTap Cou…](https://www.bartleby.com/isbn_cover_images/9781337395250/9781337395250_smallCoverImage.gif)
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
![Corporate Finance (The Mcgraw-hill/Irwin Series i…](https://www.bartleby.com/isbn_cover_images/9780077861759/9780077861759_smallCoverImage.gif)
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education