You want to create a portfolio equally as risky as the market, and you have $1,2

Question

You want to create a portfolio equally as risky as the market, and you have $1,200,000 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 $1,200,000 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

Let x be amount invested in risk free asset and (1200,000 - 156,000 - 276,000 - x) be invested in stock C.

The beta of market is 1 and beta of risk free asset is 0.

So we have (156,000/1200,000)* 1.2 + (276,000/1200,000)*1.4 + (768,000-x/ 1200,000)*1.5 + 0 =1

=0.156 + 0.322 + (768,000-x/1200,000) = 1

(768,000-x/1200,000)= 0.522

So x=141,600 is invested in risk free asset withbeta of 0

And 626,400 invested in stock C

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