Based on a conversation with her husband, Grace is considering selling the $100,000 of ABC stock and acquiring $100,000 of XYZ Company common stock instead XYZ stock has the same expected return and standard deviation as ABC stock Her husband comments, It doesn 't matter whether you keep all of the ABC stock or replace it with $100,000 of the XYZ stock Are her husband 's comments correct or incorrect Justify your response

Question: Based on a conversation with her husband, Grace is considering selling the $100,000 of ABC stock and acquiring $100,000 of XYZ Company common stock instead.

Based on a conversation with her husband, Grace is considering selling the $100,000 of ABC stock and acquiring $100,000 of XYZ Company instead. XYZ stock has the same and standard deviation as ABC stock. Her husband comments, "It doesn't matter whether you keep all of the ABC stock or replace it with $100,000 of the XYZ stock." Are her husband's comments correct or incorrect? Justify your response.

Step by Step Solution

★★★★★

3.48 Rating (184 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

The comment is not correct Although the standard d... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

175-B-F-F-M (1231).docx

120 KBs Word File

Students Have Also Explored These Related Finance Questions!

The (annual) expected return and standard deviation of returns for 2 assets are as follows: Asset A : E[r] 10% , SD[r] 30% Asset B : E[r] 20% , SD[r] 50% The correlation between the returns is 0.15...

Grace is considering selling all of her holding of stocks and putting the money into a bank account. After checking out three banks, she obtained the following information: i) Bank A alc: 24% APR...

From the following data calculate expected return & standard deviation of shares of A ltd. The current market price = Rs. 261.25 Economic Condition Probability Share Price Dividend High Growth...

Old MathJax webview 5 666666666 6. (10pt) On the basis of conversation with her husband, Grace is considering selling the $100,000 of ABC stock and acquiring $ 100,000 of XYZ company stock. XYZ stock...

On the basis of conversation with her husband, Grace is considering selling the $100,000 of ABC stock and acquiring $100,000 of XYZ company stock. XYZ stock has the same expected return and standard...

1.Based on conversations with her husband, Simale is considering selling the $100,000 of ABC stock and acquiring $100,000 of XYZ Company common stock instead. XYZ stock has the same expected return...

d . Based on conversations with his friend, the investor is considering selling the $ 1 0 0 , 0 0 0 of ABC stock and acquiring $ 1 0 0 , 0 0 0 of XYZ Company common stock instead. XYZ stock has the...

Based on conversations with her husband, Grace is considering selling the $ 1 0 0 , 0 0 0 ABC stock and acquiring $ 1 0 0 , 0 0 0 of XYZ Company common stock instead. XYZ stock has the same expected...

A machine operator at a pencil-manufacturing facility gathered 10 different random samples of 100 pencils. The operators inspection was to determine whether the pencils were in compliance or out of...

Comment on the ethics of the following situations: a. A political action committee conducts a survey about its cause. At the end of the questionnaire, it includes a request for a donation. b. A...

In the context of corporate equity valuation, rational expectations theory suggests that: Future cash flows are irrelevant for today's stock prices. Investor sentiment has no impact on valuation....

What effect does the practice of corporate social responsibility have on brand equity?

You are a U.S. investor who invested $420,000 in India five years ago. Assume that your investment gained 7 percent per year. If the exchange rate moved from 70.1 rupees per dollar to 72.4 rupees per...

Use the search function to identify available mortgage-backed securities.

What are the monthly payments on a 30-year, $150,000 mortgage if the mortgage rate is 6 percent? What portion of the first payment is interest? Principal?

8, An agreement giving the corporation the option to repurchase a bond at a specified price prior to maturity is called a a. Sinking fund b. Collateral payment account. c. Deed in trust account d....

A stock has FCFF of $5.04 and interest per share of $1.1. Their beginning long-term debt was $4.54 per share and their ending long-term debt was $4.83 per share. If their tax rate is 24.8%, then what...

You buy a share of The Ludwig Corporation stock for $19.90. You expect it to pay dividends of $1.07, $1.16, and $1.2576 in Years 1, 2, and 3, respectively, and you expect to sell it at a price of...