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

question 28

Multiple Choice

You are thinking of adding one of two investments to an already well diversified portfolio. Security A Security B
Expected return = 12% Expected return = 12%
Standard deviation of returns = 20.9% Standard deviation of returns = 10.1%
Beta = .8 Beta = 2
If you are a risk-averse investor

• A) security A is the better choice.
• B) security B is the better choice.
• C) either security would be acceptable.
• D) cannot be determined with information given.

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Definitions:

Marketability

The ability of a product or service to be sold or marketed effectively to consumers.

Convertible Debt

A type of financing option that allows the holder to convert the outstanding debt into equity, typically shares of the issuing company, under specified conditions.

Venture Capitalist

A professional investor who provides capital to companies exhibiting high growth potential in exchange for equity or an ownership stake.

Equity

The value of an ownership interest in property, including shareholders' equity in a company, which represents the residual value to shareholders after debts and liabilities have been settled.