is a very low‐risk security. Campbell agrees that the stock is relatively safe, but he
wants to demonstrate that his fatherʹs risk would be even lower if he were more
diversified. Campbell obtained the following returns data shown for West Coast Bank
(WCB). 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 his fatherʹs
historical risk have been reduced if he had held a portfolio consisting of 60% ECB and
the remainder in WCB?
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