You have chosen a stock for your two-asset portfolio and you need to choose one more stock. Which of the followingstocks minimizes the risk of your two-asset portfolio?Stock 1 with a covariance of 3,411Stock 2 with a correlation coefficient of -0.62O Stock 3 with a correlation coefficient of -0.17Stock 4 with a covariance of 1,100O Stock 5 with a correlation coefficient of 0.66

Portfolio is combination of stocks in different proportions so as to minimize the risk and increase…

You have chosen a stock for your two-asset portfolio and you need to choose one more stock. Which of the following stocks minimizes the risk of your two-asset portfolio? O Stock 1 with a covariance of 3,411 O Stock 2 with a correlation coefficient of -0.62 O Stock 3 with a correlation coefficient of -0.17 O Stock 4 with a covariance of 1,100 O Stock 5 with a correlation coefficient of 0.66

You have chosen a stock for your two-asset portfolio and you need to choose one more stock. Which of the following stocks minimizes the risk of your two-asset portfolio? O Stock 1 with a covariance of 3,411 O Stock 2 with a correlation coefficient of -0.62 O Stock 3 with a correlation coefficient of -0.17 O Stock 4 with a covariance of 1,100 O Stock 5 with a correlation coefficient of 0.66

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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Consider the following table, which gives a security analyst's expected return on two stocks in two particular scenarios for the rate of return on the market: Market Return 6% 22 Aggressive Stock -3% 35 Defensive Stock 4% 12 Required: a. What are the betas of the two stocks? b. What is the expected rate of return on each stock if the two scenarios for the market return are equally likely? e. What hurdle rate should be used by the management of the aggressive firm for a project with the risk characteristics of the defensive firm's stock if market return is equally likely to be 6% or 22% ? Also, assume a T-Bill rate of 4%.
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