You want to create a portfolio equally as risky as the market, and you have $500

Question

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:

How much will you invest in Stock C? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

How much will you invest in the risk-free asset? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

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:

Explanation / Answer

Creating a Portfolio as risky as the Market means creating a Portfolio with Beta 1

Amount to be invested = $500000

Risk free asset has a beta of 0

(Stock A xBeta of A)+(Stock B x Beta of B)+(Stock Cx BEta of C)+(Risk free AssetX beta of RFA) = 500000

(134000x.79)+(146000x1.24)+(Stock C x 1.39)+RFA = 500000

105860+181040+1.39Stock C+0 = 500000

1.39Stock C = 500000 - 105860-181040

Stock C = 213100/1.39

Investment in Stock C = $153309.40

Investment in Risk free Asset = 500000 - 134000-146000-153309.40=$66690.60

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