Your client is shocked at how much risk Blandy stock has and would like to reduce the level of risk.

Your client is shocked at how much risk Blandy stock has and would like to reduce the level of risk.

You suggest that the client sell 25% of the Blandy stock and create a
portfolio with 75% Blandy stock and 25% in the high-risk Gourmange stock. How
do you suppose the client will react to replacing some of the Blandy stock with highrisk
stock? Show the client what the proposed portfolio return would have been in
each of year of the sample. Then calculate the s average return and standard
deviation using the portfolio’s annual returns. How does the risk of this two-stock
portfolio compare with the risk of the individual stocks if they were held in
isolation?

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