Finance 8 - 11 John's father holds just one stock Goldberg...

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11.  John's father holds just one stock, Goldberg Co., which he thinks is a very low risk security. John agrees that the stock is relatively safe, but he wants to demonstrate to his father that he could still reduce his risk by diversifying. He obtained the return shown below on Goldberg and Eastern Corp. Both have had less variability than most other stocks over the past 5 years. Measured by the standard deviation of returns, by how much would historical risk have been reduced if Goldberg and Eastern were held in a portfolio consisting of 50% in Goldberg and the rest of the money in Eastern?   Year Goldberg     Eastern       2001 40% 40%   2002 -10    15      2003 35    -5      2004 -5    -10      2005 15    35      Avg return 15.00% 15.00%   Std dev 20.56% 20.56% A)  6.35% B)  9.90% C)  8.86% D)  7.70% E)  10.05% Points Earned:  5.0/5.0  Correct Answer(s): A 12.  Suppose you hold a diversified portfolio consisting of $10,000 invested equally in each of 10 different common stocks. The portfolio's beta is 1.120. Now suppose you decided to sell one of your stocks that has a beta of 1.000 and to use the proceeds to buy a replacement stock with a
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