You Have the Choice of Introducing Either Stock X or Stock

question 14

Multiple Choice

You have the choice of introducing either Stock X or Stock Y into your fully diversified portfolio.Both stocks have 5 units of systematic risk while Stock X has 6 units of unsystematic risk and Stock Y has 8 units of unsystematic risk.Which stock offers the greatest opportunity from diversification?

• A) Stock X
• B) Stock Y
• C) both stock offer the same opportunity
• D) there is not enough information to determine the answer

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Definitions:

Inventory Investment

The stock of goods or raw materials kept by a business to meet future sales or production needs.

Hybrid Varieties

Plant varieties developed through the crossbreeding of two genetically different parent plants, aiming to produce offspring with desirable traits from both.

Partnerships

A form of business organization in which two or more individuals share ownership, responsibilities, and the profits or losses of the enterprise.

Corporations

Legal entities that are separate from their owners, providing limited liability protection, and have the ability to raise capital by issuing shares.