Your eccentric uncle died and left you $100,000. However, the will stipulated that the entire amount must be invested in common stocks. Specifically, $50,000 must be invested in a single stock (a one-stock portfolio) and the other $50,000 must be invested in a 100-stock portfolio. You are very risk averse, so you want to minimize the riskiness of each $50,000 investment.
a. Describe the kind of stock you would choose for your single-stock portfolio.
b. What types of stock would you choose the stocks for your 100-stock portfolio?
a. Describe the kind of stock you would choose for your single-stock portfolio?
If a stock is held alone, then the measure of risk is the standard deviation of returns. Higher the standard deviation, more is the risk. ...
The solution explains which kind of stock to be added in a single stock portfolio and in a 100 stock portfolio.