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Stock A has an expected return of 7%, a standard deviation of expected returns at 35%,...

Stock A has an expected return of 7%, a standard deviation of expected returns at 35%, a correlation coefficient with the market of -.3, and a beta coefficient of -.5. Stock B has an expected return of 12%, a standard deviation of 10%, and a .7 correlation with the market, and a beta coefficient of 1.0 . Which security is riskier? why?

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Answer #1

For an undiverisifed investor, the relevant risk is measured by standard deviation. Hence, Stock A is riskier
For a diverisifed investor, the relevant risk is measured by beta. Hence, Stock B is riskier

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