Question

You own a portfolio that has a total value of $210,000 and it is invested in Stock D with a beta of .87 and Stock E with a beta of 1.38. The beta of your portfolio is equal to the market beta. What is the dollar amount of your investment in Stock D

Answer 1

The dollar amount of the investment in Stock D is (x=$156470.59)

Step-by-step explanation:

Let assume investment in Stock D = $x

Hence investment in Stock E = (210,000-x)

Portfolio beta=Respective betas * Respective investment weights

1= (x/210,000*0.87) + (210,000-x) /210,000*1.38[Beta of market=1]

(1*210,000) = 0.87x + 289800 -1.38x

290,000=0.87x+289800-1.38x

Hence x=(289800-210,000)/(1.38-0.87)

x= 79,800 / 0.51

x=156470.5882

x=$156470.59