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Bess [88]
3 years ago
11

Portfolio AB was created by investing in a combination of Stocks A and B. Stock A has a beta of 1.2 and a standard deviation of

25%. Stock B has a beta of 1.4 and a standard deviation of 20%. Portfolio AB has a beta of 1.25 and a standard deviation of 18%. Which of the following statements is CORRECT?
A. Portfolio AB has the same amount of money invested in each of the two stocks.
B. Stock A has more market risk than Stock B but less stand-alone risk.
C. Portfolio AB has more money invested in Stock A than in Stock B.
D. Stock A has more market risk than Portfolio AB.
E. Portfolio AB has more money invested in Stock B than in Stock A.
Business
1 answer:
deff fn [24]3 years ago
6 0

Answer:

C. Portfolio AB has more money invested in Stock A than in Stock B.

Explanation:

Beta coefficient is used to measure the systemic risk of an investment, while standard deviation is employed to measure the total risk of an investment.

Under a portfolio investment decision making, beta coefficient is the relevant measure of risk to consider because its only aim is to put the undiversifiable risk into consideration.

Therefore, Portfolio AB has more money invested in Stock A because it has lower beta of 1.2 than in Stock B has a higher beta of 1.4.

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