Homework Help: fiance

Posted by brandon on Monday, October 26, 2009 at 10:20pm.

Sonny owns $5,000 worth of High Risk Enterprises (HRE) stock. HRE has a standard deviation of 16 percent and a beta of 2.0. He wants to invest another $5,000 and create a $10,000 portfolio that is equally as risky as the overall market. Which one of the following will accomplish his goal?
A. invest the additional $5,000 in a security that is equally as risky as the market
B. sell HRE and invest the entire $10,000 in risk-free securities
C. sell HRE and invest $5,000 in risk-free securities and $5,000 in a stock that has a standard deviation of 4 percent
D. invest the additional $5,000 in a stock that has a standard deviation of 4 percent
E. invest the additional $5,000 in risk-free securities

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