Question

g You want to create a portfolio equally as risky as the market, and you have $500,000 to invest. Information about the possible investments is given below: Asset Investment Beta Stock A $ 147,000 .92 Stock B $ 133,000 1.37 Stock C 1.52 Risk-free asset How much will you invest in Stock C

Answer 1

I will invest $220,000

Step-by-step explanation:

Let the Investment in Stock C x

Weightage of Investment C x / 500,000

Weightage beta of Investment C x (1.52) / 500,000

Total Weightage =

Total Weightage of Beta

Stocks Investment Weightage Beta Weighted beta

A $147,000 (147000/500,000) = 0.294 0.92 0.27

B $133,000 (133000/500,000) = 0.266 1.37 0.36

B $220,000 (220000/500,000) = 0.44 1.52 0.67

Total Beta 1.30