Question: 1 The correlation between stocks A and B is 0.50, while the correlation between stocks A and C is 0.5. You already own Stock A

1 The correlation between stocks A and B is 0.50, while the correlation between stocks A and C is 0.5. You already own Stock A and are thinking of buying either Stock B or stock C. If you want your portfolio to have the lowest possible risk, would you buy stock B or C? Would you expect the stock you choose to affect the return that you earn on your portfolio?

2 - Historical market: Describe the general relation between risk and return that we observe in the historical bond and stock market data.

3 - Measuring systematic risk: Susan is expecting the returns on the market portfolio to be negative in the near term. Since she is managing a stock mutual fund, she must remain invested in a portfolio of stocks. However, she is allowed to adjust the beta of her portfolio. What kind of beta would you recommend for Susan's portfolio?

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