Essay
An investor is considering the three stocks given below:
A.
Stock B and C: Rp = .5(13.3%) + .5(9.2%) = 11.25%
Stock B and C: β p = .5(2.1) + .5(0.75) = 1.425
Stock B and T-bills: βB&TBILL = .5(2.1) + .5(0) = 1.05
Stock's B and A: βB&A = .5(2.1) + .5(-0.1) = 1.00
C. Demonstrate that holding stock A actually reduces risk by comparing the risk of a portfolio equally weighted between stock B and T-Bills with a portfolio equally weighted between stock B and
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