As part of our portfolio management chapter, we discussed diversification benefits. We said that when two stocks are combined into a portfolio, we end up with a portfolio that has a better return and better risk than the best of the two stocks. Any reasonable person would expect to have an average return and average risk when two securities are combined into a portfolio. How is it even possible to have a portfolio that has lower risk than the best of the two securities included into the portfolio?
As part of our portfolio management chapter, we discussed diversification benefits. We said that when two stocks are combined into a portfolio, we end up with a portfolio that has a better return and better risk than the best of the two stocks. Any reasonable person would expect to have an average return and average risk when two securities are combined into a portfolio. How is it even possible to have a portfolio that has lower risk than the best of the two securities included into the portfolio?
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QUESTION 5
Today is your 25th birthday, and you want to save $1.5 Million by your birthday at age 70. If you expect to earn 7% APR compounded monthly in your retirement account, what constant payment at the end of each month must you deposit into the account through your 70th birthday in order to reach your retirement savings goal on your 70th birthday? (Answer to the nearest penny.)
QUESTION 46
Suppose you are comparing two portfolios of stocks to determine which is more appropriate for all of your investments. Portfolio A contains a large number of stocks, but each stock appears to have a relatively high amount of risk which you believe is unsystematic in nature and a relatively low level of systematic risk. Portfolio B also contains a large number of stocks, however each stock in that portfolio seems to contain a relatively large amount of systematic risk and a low level of unsystematic risk. If both portfolios have the same expected return, which portfolio would most likely be the best choice?
a. | Portfolio A | |
b. | Portfolio B | |
c. | There is no information that would indicate that one portfolio is better than the other. |