Question

You hold the market portfolio and believe that the risk premium for holding the market portfolio is 5% per year. The risk free rate is 5%. You are given the opportunity to invest a small amount in one of two new stock issues: Allied Inc. or Apex Corp. Allied's stock has an annual standard deviation of 40%, a beta of 0.5, and an expected return of 8.0%. Apex's stock has an annual standard deviation of 30%, a beta of 0, and an expected return of 9.0%. If you could add at most one stock to your portfolio, which would you add?

          You hold the market portfolio and believe that the risk premium
for holding the market portfolio is 5% per year.  The risk
free rate is 5%.  You are given the opportunity to invest a
small amount in one of two new stock issues: Allied Inc. or Apex
Corp.  Allied's stock has an annual standard deviation of 40%,
a beta of 0.5, and an expected return of 8.0%. Apex's stock has an
annual standard deviation of 30%, a beta of 0, and an expected
return of 9.0%. If you could add at most one stock to your
portfolio, which would you add?

Added by Carla S.

Question

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