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Shemar Angel holds a $200,000 portfolio consisting of the following stocks. The portfolio's beta is 1.225. Stock Investment Beta $50,000 1.80 B $50,000 1.40 $50,000 0.50 D $50,000 1.20 Total $200,000 If Shemar replaces Stock A with another stock, E, which has a beta of 0.85, what will the portfolio's new beta be? Do not round your intermediate calculations. O a. 1.1500 O b. 0.9875 O C. 0.9192 O d. 1.4000 O e. 1.4375 Assume that your uncle holds just one stock, East Coast Bank (ECB), which he thinks has very little risk. You agree that the stock is relatively safe, but you want to demonstrate that his risk would be even lower if he were more diversified. You obtain the following returns data for West Coast Bank (WCB). Both banks have had less variability than most other stocks over the past 5 years. Measured by the standard deviation of returns, by how much would your uncle's risk have been reduced if he had held a portfolio consisting of 34% in ECB and the remainder in WCB? (Hint: Use the sample standard deviation formula.) Do not round your intermediate calculations. Year ECB WCB 1 40.00% 2 40.00% -10.00% 37.00% 17.00% 3 -5.00% 4 -5.00% 17.00% -10.00% 37.00% 5 15.80% 15.80% Average return = Standard deviation = 23.10% 23.10% O a. 3.46 p.p. O b. 1.59 p.p. O c. 5.90 p.p. O d. 1.77 p.p. O e. 3.87 p.p

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