You have developed the following data on three stocks: Stock A has a standard deviation of .15 and a Beta of .79. Stock B has a standard deviation of .25 and a Beta of .61. Stock C has a standard deviation of .10 and a Beta of 1.29. If you are a risk minimizer, you should 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.

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05-03-2020
Business

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You have developed the following data on three stocks: Stock A has a standard deviation of .15 and a Beta of .79. Stock B has a standard deviation of .25 and a Beta of .61. Stock C has a standard deviation of .10 and a Beta of 1.29. If you are a risk minimizer, you should 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.

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funmilaciousfunmie78 funmilaciousfunmie78 · Answer 1 · 2020-03-05T06:23:07+01:00

Answer:

As a risk minimizer : Stock A has the lowest standard deviation, thus, it should be chosen, if it is to be held in isolation . Also stock B has the lowest beta, thus,it should be chosen, if it is to be held as part of a well - diversified portfolio.

The answer is A and B respectively

Explanation:

The standalone risk or standard deviation of the stocks is alleviated for a well diversified investor . So, in that case, the relevant risk would be the market risk or the beta.

When you see in isolation, relevant risk would be the standard deviation.

Therefore, as a risk minimizer : Stock A has the lowest standard deviation, thus, it should be chosen, if it is to be held in isolation . Also stock B has the lowest beta, thus,it should be chosen, if it is to be held as part of a well - diversified portfolio.