Finance Quiz
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RISK AND RETURN
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A portfolio currently has an expected return of 10% and a standard deviation of 15%. A risk analyst suggests adding a new asset to the portfolio. This new asset has a standard deviation of 25% and a very low correlation with the existing portfolio. A junior analyst objects, stating, 'We cannot add an asset with 25% risk to our 15%-risk portfolio; it will automatically increase the portfolio's total risk.' The risk analyst's suggestion is:
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