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

Question

Quizplus · Accepted Answer

U.S. Treasury bills are generally considered risk-free and adding them to a portfolio will lower the portfolio's overall risk. As they have no market risk or default risk, they have a beta of 0, which will significantly lower the portfolio's beta. Therefore, D is the most assured choice to lower the investment risk of the portfolio.

Amy Has a Portfolio with a Beta of 1