Risk-averse or risk-tolerant investors

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Use the following data to solve the problems below: The correlation coefficients between several pairs of stocks are as follows: Corr(A, B) = .85; Corr(A, C) = .60; Corr(A, D) = .45. Each stock has an expected return of 8% and a standard deviation of 20%"

1a. If your entire portfolio is now composed of stock A and you can add some of only one stock to your portfolio, would you choose (explain your choice):

a. B

b. C

c. D

d. Need more data"

1b. Would the answer to Problem 17 change for more risk-averse or risk-tolerant investors? Explain.

1c. Suppose that in addition to investing in one more stock you can invest in T-bills as well. Would you change your answers to Problems 17 and 18 if the T-bill rate is 8%?"

Reference no: EM133076633

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