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  3. 5 5. (20pt) abigail grace has a $900,000 fully di

5 5. (20pt) Abigail Grace has a $900,000 fully diversified portfolio. She subsequently inherits...

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5. (20pt) Abigail Grace has a $900,000 fully diversified portfolio. She subsequently inherits ABC Com- pany Stock worth $100,000. Her financial advisor provided her with the following estimates: Funds Original Portfolio ABC Company Stock Expected Monthly Return 0.67% 1.25% Standard Deviation 2.37% 2.95% Furthermore, the correlation coefficient between the returns of the original portfolio and ABC stock is 0.4. The inheritance changes Grace's overall portfolio, and she is deciding whether to keep the ABC stock. (a) Assuming that Grace keeps the stock, calculate the expected return and standard deviation of her new portfolio, which include the ABC stock. (b) If Grace sells the ABC stock, she will invest the proceeds in risk-free government securities yield- ing 0.42% monthly. Calculate the expected return and standard deviation of her new portfolio, which include the government securities

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