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    Portfolio Theory Expected Rate of Return

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    Security A has an expected rate of return of 6%, a standard deviation of returns of 30%, a correlation coefficient with the market of -0.25, and a beta coefficient of -0.5. Security B has an expected return of 11%, a standard deviation of returns of 10%, a correlation with the market of 0.75, and a beta coefficient of 0.5. Which security is more risky? Why?

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    Solution Preview

    Stock A is more risky.

    First, we should define risk.

    In financial economics, we define risk to be the difference between the actual return and the expected return. An asset is said to be ...

    Solution Summary

    Portfolio theory for the expected rate of return is examined.