Amy has a portfolio with a beta of 1.26.She 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 .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 considered risk-free securities and have no beta as they are not influenced by market fluctuations. Adding them to a portfolio will lower the portfolio's overall risk without affecting the expected return. Therefore, adding U.S. Treasury bills is the most assured way to lower the risk of the portfolio.

Amy Has a Portfolio with a Beta of 1