# Question

Answer the following questions using the information provided in Problem 8–3:

In Problem 8–3, Mary Guilott recently graduated from college and is evaluating an investment in two companies’ common stock. She has collected the following information about the common stock of Firm A and Firm B:

a. Answer question a of Problem 8–3, where Mary decides to invest 10 percent of her money in Firm A’s common stock and 90 percent in Firm B’s common stock.

b. Answer question a of Problem 8–3, where Mary decides to invest 90 percent of her money in Firm A’s common stock and 10 percent in Firm B’s common stock.

c. Recompute your responses to both questions a and b, where the correlation between the two firms’ stock returns is −4.

d. Summarize what your analysis tells you about portfolio risk when combining risky assets in aportfolio.

In Problem 8–3, Mary Guilott recently graduated from college and is evaluating an investment in two companies’ common stock. She has collected the following information about the common stock of Firm A and Firm B:

a. Answer question a of Problem 8–3, where Mary decides to invest 10 percent of her money in Firm A’s common stock and 90 percent in Firm B’s common stock.

b. Answer question a of Problem 8–3, where Mary decides to invest 90 percent of her money in Firm A’s common stock and 10 percent in Firm B’s common stock.

c. Recompute your responses to both questions a and b, where the correlation between the two firms’ stock returns is −4.

d. Summarize what your analysis tells you about portfolio risk when combining risky assets in aportfolio.

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