Question

You have analyzed four stocks and obtained the following results:

**Stock**
**Return** **Standard**
** ****Beta**

K 22% 35% 2.8

I 10% 17% 0.8

N 8% 15% 0.2

G 10% 13% 0.5

Refer to the information above. A risk-averse investor, who will be adding the stock to his already well-diversified portfolio, would choose to invest in Stock

A) K

B) I

C) N

D) G

Answer #1

A risk averse investor would not be investing in stock having beta 2.8 and standard deviation of 35% even though his portfolio is well diversified because this a very high beta stock.So he would refrain from investing into Stock K.

He will not prefer to invest in stock G and stock I because Stock G offers same return as Stock I and both have higher beta than stock N .So he will choose Stock N.

He'll choose stock N because it is offering the lowest rate of beta and a good return in comparison with Stock G and stock I as he is a risk averse Investor and he would like to choose stock with lowest beta.

So the answer will be OPTION (C) STOCK N.

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averse investor, you would choose Stock _____ and Stock ______ if
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C; B
A;...

Suppose you collect the information of two
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Beta
Stock A
13%
15%
1.6
Stock B
9.2%
25%
1.1
a. If you have a well-diversified portfolio of 50 stocks and you
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If you are a new investor looking for your first stock investment,
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b. If the...

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A
B
C
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13%
10%
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Beta
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2
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Standard Deviation
Beta
E
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L
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0.67
G
12%
1.30
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it is to be held in isolation and Stock ____ if it is to be held as
part of a well-diversified portfolio.
Answers: One is correct
E; L.
G; E.
E; E.
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A
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A
10%
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B
12%
0.61
C
14%
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2.
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3.
Both stocks have the same amount of absolute risk.
4.
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