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Unformatted text preview: 5.0/5.0 Correct Answer(s): D 3. A highly risk-averse investor is considering adding one additional stock to a 4-stock portfolio. Two stocks are under consideration. Both have an expected return, , of 15%. However, the distribution of possible returns associated with Stock A has a standard deviation of 12%, while Stock B's standard deviation is 8%. Both stocks are equally highly correlated with the market, with r equal to 0.75 for both stocks. Which stock should this risk-averse investor add to his/her portfolio? A) Add A, since its beta is lower. B) Stock A. C) Either A or B. D) Neither A nor B. E) Stock B. Points Earned: 5.0/5.0 Correct Answer(s): E...
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- Spring '09