Security A has an expected rate of return of 6%, a standard deviation of returns of 30%, a correlation coefficient with the market of −0.25, and a beta coefficient of −0.5. Security B has an expected return of 11%, a standard deviation of returns of 10%, a correlation with the market of 0.75, and a beta coefficient of 0.5. Which security is more risky? Why?

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Answer 1

Textbook Question

Chapter 3, Problem 2Q

Security A has an expected rate of return of 6%, a standard deviation of returns of 30%, a correlation coefficient with the market of −0.25, and a beta coefficient of −0.5. Security B has an expected return of 11%, a standard deviation of returns of 10%, a correlation with the market of 0.75, and a beta coefficient of 0.5. Which security is more risky? Why?

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 σ_A > σ_B and CV_A > CV_B, security A will be much risky.

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Answer 2

Textbook Question

Chapter 3, Problem 2Q

Security A has an expected rate of return of 6%, a standard deviation of returns of 30%, a correlation coefficient with the market of −0.25, and a beta coefficient of −0.5. Security B has an expected return of 11%, a standard deviation of returns of 10%, a correlation with the market of 0.75, and a beta coefficient of 0.5. Which security is more risky? Why?

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 σ_A > σ_B and CV_A > CV_B, security A will be much risky.

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Answer 3

Textbook Question

Chapter 3, Problem 2Q

Security A has an expected rate of return of 6%, a standard deviation of returns of 30%, a correlation coefficient with the market of −0.25, and a beta coefficient of −0.5. Security B has an expected return of 11%, a standard deviation of returns of 10%, a correlation with the market of 0.75, and a beta coefficient of 0.5. Which security is more risky? Why?

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 σ_A > σ_B and CV_A > CV_B, security A will be much risky.

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Answer 4

Textbook Question

Chapter 3, Problem 2Q

Security A has an expected rate of return of 6%, a standard deviation of returns of 30%, a correlation coefficient with the market of −0.25, and a beta coefficient of −0.5. Security B has an expected return of 11%, a standard deviation of returns of 10%, a correlation with the market of 0.75, and a beta coefficient of 0.5. Which security is more risky? Why?

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 σ_A > σ_B and CV_A > CV_B, security A will be much risky.

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Answer 5

Textbook Question

Answer 6

Textbook Question

Answer 7

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 σ_A > σ_B and CV_A > CV_B, security A will be much risky.

Answer 8

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 σ_A > σ_B and CV_A > CV_B, security A will be much risky.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Summary Introduction

To discuss: The security that is much riskier.

Answer 12

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 σ_A > σ_B and CV_A > CV_B, security A will be much risky.

Answer 13

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 An analyst has modeled the stock of Crisp...Ch. 3 - Two-Asset Portfolio Stock A has an expected return...Ch. 3 - Prob. 4P Ch. 3 - You have been hired at the investment firm of...Ch. 3 - You have been hired at the investment firm of...Ch. 3 - You have been hired at the investment firm of...Ch. 3 - You have been hired at the investment firm of...Ch. 3 - You have been hired at the investment firm of...

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