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: Asset Investment Beta Stock A $ 130,000 .75 Stock B $ 150,000 1.20 Stock C 1.35 Risk-free asset Requirement 1: How much will you invest in Stock C? (Do not include the dollar sign ($). Round your answer to 2 decimal places (e.g., 32.16).) Investment in Stock C $ Requirement 2: How much will you invest in the risk-free asset? (Do not include the dollar sign ($). Round your answer to 2 decimal places (e.g., 32.16).)

Explanation / Answer

Statement showing computation Particulars Amount Weight Beta Stock A         130,000.00                                         0.26                           0.75                                0.20 Stock B         150,000.00                                         0.30                           1.20                                0.36 Stock C x x/500,000                           1.35 1.35x/500,000 Risk Free Asset 220,000 - x (220,000-x)/500,000                                -                                      -           500,000.00                                1.00 .20 + .36 + 1.35x/500,000 = 1 .5550 + 1.35x/500,000 = 1 1.35x/500,000 = .445 Stock C =x = $164,814.81 Risk Free Asset = 220,000 - 164,814.81 Risk Free Asset = 55,185.19

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.