CAS Exam 9 Spring 2013, Question 4
Study guide: Exam 9
An investment manager currently invests all assets in a market index fund with \beta equal to 1.0. To reduce the risk, the manager plans to sell the market index fund and invest entirely in a single stock with \beta equal to 0.75.
Using the Capital Asset Pricing Model (CAPM), fully discuss the impact of the manager's strategy on the overall risk of the investment.
Part a (1 point)
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