Intermediate Financial Management (MindTap Course List)
12th Edition
ISBN: 9781285850030
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Textbook Question
Chapter 3, Problem 2Q
Security A has an expected
Expert Solution & Answer
Summary Introduction
To discuss: The security that is much riskier.
Explanation of Solution
In case of diversified portfolio due to lower negative correlation and beta with the other stocks, security A will be mess risky. However, in a single-asset portfolio, due to σA > σB and CVA > CVB, security A will be much risky.
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Security A has an expected rate of return of 6%, a standard deviation ofreturns of 30%, a correlation coefficient with the market of 20.25, and abeta coefficient of 20.5. Security B has an expected return of 11%, a standard deviation of returns of 10%, a correlation with the market of 0.75, anda beta coefficient of 0.5. Which security is more risky? Why?
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Chapter 3 Solutions
Intermediate Financial Management (MindTap Course List)
Ch. 3 - Security A has an expected rate of return of 6%, a...Ch. 3 - The standard deviation of stock returns for Stock...Ch. 3 - APT
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