Question

You are considering investing in one of the these three stocks:

Stock	Standard Deviation	Beta
A	10%	1.59
B	12%	0.61
C	14%	1.29

A

10%

1.59

B

12%

0.61

C

14%

1.29

If you are a strict risk minimizer, you would choose Stock ____ if it is to be held in isolation and Stock ____ if it is to be held as part of a well-diversified portfolio.You are considering investing in one of the these three stocks:

Answer 1

If you are a strict risk minimizer, you would choose Stock A if it is to be held in isolation and Stock B if it is to be held as part of a well-diversified.

This is because stock A has the least standard deviation out of all three and in isolation risk is measured by standard deviation of stocks

And as part of a well diversified portfolio , risk is measured by beta of stock , hence to minimize risk in a portfolio , a stock with the lowest beta will be chosen which is stock B in this case.