Isaac has a $900,000 fully diversified portfolio. He subsequently inherits TURE Company common stock worth $100,000. His financial adviser provided him with the following forecast information: The Expected Monthly Returns for original portfolio and TURE company are 0.23% and 1.45%. The Standard Deviation of Monthly Returns of original portfolio and TURE company are 2.37% and 2.95%. The correlation coefficient of TURE stock returns with the original portfolio returns is 0.40. Assume she does this, what is the expected return of her new porfolio which includes the government securities. Covariance of the government security returns with the original portfolio returns. Standard deviation of her new portfolio which includes the government securities. Based on the conversations with her husband, she is considering selling the $100,000 of ABC stock and acquiring of XYZ company common stock instead. XYZ stock has the same expected return and SD as the ABC stock. Her husband comments, “it doesn’t matter whether you keep all of ABC stock or replace it with $100,000 of XYZ stock”.
Required:
Is her husband’s comment correct or incorrect?