Your friend is considering adding one additional stock to a 3-stock portfolio, to form a 4-stock portfolio.
Fantastic news! We've Found the answer you've been seeking!
Question:
a. Neither A nor B, as neither has a return sufficient to compensate for risk.
b. Stock B.
c. Add A, since its beta must be lower.
d. Either A or B, i.e., the investor should be indifferent between the two.
e. Stock A.
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