If Juanita reduces her portfolio's exposure to risk by opting for a smaller share of stocks, he must also accept a ______ (higher/lower) average annual return.
Suppose Juanita currently allocates 75% of her portfolio to a diversified group of stocks and 25% of her portfolio to risk-free bonds; that is, she chooses combination D. She wants to reduce the level of risk associated with her portfolio from a standard deviation of 15 to a standard deviation of 5. In order to do so, she must do which of the following? Check all that apply.
__Sell some of her stocks and use the proceeds to purchase bonds
__Accept a lower average annual rate of return
__Sell some of her bonds and use the proceeds to purchase stocks
___Place the entirety of her portfolio in bonds
The table uses the standard deviation of the portfolio's return as a measure of risk. A normal random variable, such as a portfolio's return, stays within two standard deviations of its average approximately 95% of the time.
Suppose Juanita modifies her portfolio to contain 25% diversified stocks and 75% risk-free government bonds; that is, she chooses combination B. The average annual return for this type of portfolio is 3.5%, but given the standard deviation of 5%, the returns will typically (about 95% of the time) vary from a gain of_____ to a loss of _____ .