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You already have a very well-diversified portfolio of common stock with a beta of 2, and...

You already have a very well-diversified portfolio of common stock with a beta of 2, and you want to add stock AAA or BBB into the portfolio. AAA’s standard deviation is 0.2300 and its beta is 4. BBB’s standard deviation is 0.6500 and its beta is 0.9. Will the addition of AAA increase or decrease the beta and standard deviation of the portfolio? How about the addition of BBB stock?

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Expert Solution

The addition of AAA will increase beta and decrease standard deviation of portfolio.
The addition of BBB will decrease beta and increase standard deviation of portfolio.

jeff jeffy answered 2 years ago
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