Shares of company A are sold at $10 per share. Shares of company B are sold at $50 per share. According to a market analyst, 1 share of each company can either gain $1, with a probability of 0.5 or lose $1, with probability 0.5, independently of the other company. Which of the following portfolios has the lowest risk:

a) 100 shares of A
b) 50 shares of A + 10 shares of B
c) 40 shares of A + 12 shares of B

Question

Shares of company A are sold at $10 per share. Shares of company B are sold at $50 per share. According to a market analyst, 1 share of each company can either gain $1, with a probability of 0.5 or lose $1, with probability 0.5, independently of the other company. Which of the following portfolios has the lowest risk:

a) 100 shares of A
b) 50 shares of A + 10 shares of B
c) 40 shares of A + 12 shares of B