You Are Thinking of Adding One of Two Investments to an Already

question 107

Multiple Choice

You are thinking of adding one of two investments to an already well- diversified portfolio.

If you are a risk-averse investor,which one is the better choice?

• A) Security A
• B) Security B
• C) Either security would be acceptable because they have the same beta.
• D) Security B, but only if Security B's required return is greater than 12%.

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Definitions:

Diverse Stock Portfolio

An investment strategy that involves holding a variety of different stocks to reduce risk.

Small Investors

Small investors refer to individual or retail investors who invest smaller amounts of money in securities, often lacking the market influence of larger institutional investors.

Equity Investments

Financial assets in companies or properties, representing ownership interest and the potential for dividends or capital gains.

Mutual Fund

An investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, and other assets.