Suppose there are two options to invest in stocks:
Option 1: Invest in one single stock
Option 2: Invest in a portfolio consisting of different stocks
What kinds of risk you face for option 1 and options 2? Compare the risks of the two options.
2. You are interested in investing in a portfolio including stocks A, B, C and D. You have talked to three different financial strategists:
Dan, Paul and Mary. Assuming that the risk-free rate is 4% and the expected return on the market is 12%. Who should you take their advice? (choose one person).
|
Stock
|
Beta
|
Dan's Investment
|
Paul's Investment
|
Mary's Investment
|
|
A
|
1.3
|
2500
|
5000
|
10,000
|
|
B
|
1.0
|
2500
|
5000
|
10,000
|
|
C
|
0.8
|
2500
|
5000
|
-5000
|
|
D
|
-0.5
|
2500
|
-5000
|
-5000
|