You want to create a portfolio equally as risky as the market, and you have $2,7

Question

You want to create a portfolio equally as risky as the market, and you have $2,700,000 to invest. Given this information, fill in the rest of the following table: (Do not round intermediate calculations. Round your answers to the nearest whole number, e.g., 32.)

You want to create a portfolio equally as risky as the market, and you have $2,700,000 to invest. Given this information, fill in the rest of the following table: (Do not round intermediate calculations. Round your answers to the nearest whole number, e.g., 32.)

Explanation / Answer

portfolio equally as risky as the market means the portfolio should have Beta of 1.

Beta of risk free asset=0 as there is no relation between market return and risk free asset

assume Investment in stock C=C

then investment in risk free asset=2700000-459000-783000-C=1458000-C

Portfolio beta=1

(459000/2700000)*1.00+(783000/2700000)*1.40+(C/2700000)*1.60+((1458000-C)/2700000)*0=1

0.576+(C/2700000)*1.60=1

C=((1-0.576)/1.60)*2700000

=715500 is the investment in Stock C

risk free asset investment=2700000-459000-783000-715500=742500

The above is the answer,,

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