Amy Has a Portfolio with a Beta of 1

question 13

Multiple Choice

Amy has a portfolio with a beta of 1.26 but has decided to lower her investment risk.Adding which one of the following securities to her portfolio is most assuredly going to lower the risk of the portfolio?

• A)A stock that has a covariance with the market of 0.89
• B)A security that has a standard deviation of 11 percent
• C)A security with a beta of 1.58
• D)U.S.Treasury bills
• E)A mix of small-company and large-company stocks

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Definitions:

Direct Materials

Raw materials that are directly traceable to the production of a specific good or service and an integral part of the finished product.

Direct Labor

The labor costs directly associated with the production of goods, including wages for workers who are physically involved in creating a product.

First-In, First-Out Method

An inventory valuation method where goods purchased or manufactured first are sold or used first.

Conversion Costs

The combined cost of direct labor and manufacturing overhead expenses, which are incurred to convert raw materials into finished products.