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 $ 136,000 .81 Stock B 144,000 1.26 Stock C 1.41 Risk-free asset How much will you invest in Stock C? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Investment in Stock C $ How much will you invest in the risk-free asset? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Investment in risk-free asset $

Explanation / Answer

weight of A = 136/500 = 0.272

weight of B = 144/500 = 0.288

let weight of C be w

0.272*0.81 + 0.288*1.26 + w*1.41 = 1

w = 0.2956

investment in c = 0.2956*500,000 = 147,801.42

investment in risk free asset = 500,000 - 136,000 - 144,000 - 147,801.42 = 72,198.58

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