You have invested $1 million in a market portfolio of common stocks, and you want...
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You have invested $1 million in a market portfolio of common stocks, and you want to add stock AAA or BBB that is worth $10,000 into the portfolio. AAA's standard deviation is 0.7800 and its beta is .95. BBB's standard deviation is 0.6500 and its beta is 1.2. Will the addition of AAA increase or decrease the risk of the portfolio? Why? How about the addition of BBB stock? Please show the math.
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