G6 05.6 Use Yahoo! Finance or some other source to select four stocks with betas

Question

G6 05.6 Use Yahoo! Finance or some other source to select four stocks with betas ranging from about 0.50 to 1.50. Record the current market prices of each of these stocks. Assume you wish to create a portfolio that combines all four stocks in such a way that the resulting portfolio beta is about 1.10. a. Through trial and erroc, use all four stocks to create a portfolio with the target beta of 1.10 b. If you have $100,000 to invest in this portfolio, on the basis of the weightings deter mined in part a, what dollar amounts would you invest in each stock? dollar amounts calculated in part b? beta of 1.10. Can only one unique portfolio with a given beta be created from a given c. Approximately how many shares of each of the four stocks would you buy given the d. Repeat parts a, b, and c with a different set of weightings that still result in a portfolio set of stocks

Explanation / Answer

a.

b.

c. Number of shares that can be bought:

Apple = 40,000 / 189.91 ~ 211

Aegon = 40,000 / 6.43 ~ 6,221

Berkshire = 15,000 / 303482 ~ 0

Colgate = 5000 / 66.46 ~ = 75

d.

Company Ticker Price (USD) Beta Weights Apple Inc. AAPL 189.91 1.14 0.40 Aegon N.V. AEG 6.43 1.21 0.40 Berkshire Hathaway Inc. BRK A 303432 0.86 0.15 Colgate-Palmolive Company CL 66.46 0.58 0.05 Portfolio Beta 1.10

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