You are considering investing in one of the these three stocks: $$\begin{array} { c c c }
\text { Stock } & \text { Standard Deviation } & \text { Beta } \
\text { A } & 20 \% & 0.59 \
\text { B } & 10 \% & 0.61 \
\text { C } & 12 \% & 1.29
\end{array}$$ If you are a strict risk minimizer,you would choose Stock ____ if it is to be held in isolation and Stock ____ if it is to be held as part of a well-diversified portfolio.
A)A; B.
B)B; A.
C)C; A.
D)C; B.
E)A; A.

Question

You are considering investing in one of the these three stocks: $$\begin{array} { c c c } 
\text { Stock } & \text { Standard Deviation } & \text { Beta } \
\text { A } & 20 \% & 0.59 \
\text { B } & 10 \% & 0.61 \
\text { C } & 12 \% & 1.29
\end{array}$$ If you are a strict risk minimizer,you would choose Stock ____ if it is to be held in isolation and Stock ____ if it is to be held as part of a well-diversified portfolio.
A)A; B.
B)B; A.
C)C; A.
D)C; B.
E)A; A.

Quizplus · Accepted Answer

When held in isolation, the total risk is considered, which is represented by the standard deviation. Stock B has the lowest standard deviation (10%), indicating it has the lowest total risk when held alone. When part of a diversified portfolio, systematic risk is considered, which is represented by beta. Stock A has the lowest beta (0.59), indicating it has the lowest systematic risk when part of a portfolio.

You Are Considering Investing in One of the These Three