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

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Unformatted text preview: 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...
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Finance 8 - 11. John's father holds just one stock,...

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