If an investor wanted to reduce the risk of a levered stock in their portfolio,how could they go about doing so while still retaining shares in the company?

Question

Quizplus · Accepted Answer

Selling some shares and investing in the firm's bonds would reduce the investor's exposure to the levered stock while still allowing them to retain ownership in the company. Bonds typically have less volatility than stocks and are less affected by swings in the market, reducing the overall risk of the portfolio. Option B of selling bonds and buying more stock would increase the investor's exposure to the levered stock and therefore increase the risk of the portfolio. Using borrowed funds to buy more of the firm's stock (Option C) would increase the leverage and risk of the portfolio. Option D is not a valid choice as it does not address the question.

If an Investor Wanted to Reduce the Risk of a Levered