Explore BrainMass

Explore BrainMass

    Riskiness of Stock and Diversification

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    The figures (attached) shows plots of monthly rates of return and the stock market for two stocks.

    a. Which stock is riskiest to an investor currently holding her portfolio in a diversified portfolio of common stock?
    b. Which stock is riskiest to an undiversified investor who puts all of his funds in only one of these stocks?

    © BrainMass Inc. brainmass.com December 24, 2021, 6:40 pm ad1c9bdddf
    https://brainmass.com/business/valuing-securities/riskiness-stock-diversification-130019

    Attachments

    Solution Preview

    Let the first figure be Stock A and the second figure be Stock B. The graph shows the securities characteristic line which is a plot of execs returns of a stock versus the excess returns of the market. The slope of the line is the beta of the stock.

    Which stock is riskiest to an investor currently holding her portfolio in a diversified portfolio of common stock?

    The risk of the diversified portfolio ...

    Solution Summary

    The solution explains how to evaluate the riskiness of a stock.

    $2.49

    ADVERTISEMENT