Question
In: Finance
You want to create a portfolio equally as risky as the market,and you have $1,000,000...
You want to create a portfolio equally as risky as the market, and you have $1,000,000 to invest. Given this information, fill in the rest of the following table:
| Asset | Investment | Beta |
| Stock A | 180,000 | 0.85 |
| Stock B | 290,000 | 1.40 |
| Stock C | 1.45 | |
| Risk free-rate |
Solutions
Expert Solution
The amount in stock c is computed as follows:
Beta of stock A x weight of stock A + Beta of stock B x weight of stock B + Beta of Stock C x weight of stock C + Beta of risk free asset x Weight of risk free asset = Beta of market
0.85 x $ 180,000 / $ 1,000,000 + 1.40 x $ 290,000 / $ 1,000,000 + 1.45 x weight of stock C + 0 = 1
0.153 + 0.406 + 1.45 x Amount invested in stock C / $ 1,000,000 = 1
1.45 x Amount invested in stock C / $ 1,000,000 = 0.441
Amount invested in stock C = (0.441 x $ 1,000,000) / 1.45
Amount invested in stock C = $ 304,137.931
So, the amount of investment in risk free asset shall be:
= $ 1,000,000 - $ 180,000 - $ 290,000 - $ 304,137.931
= $ 225,862.069
The beta of risk free asset is always zero.
jeff jeffy answered 2 years agoRelated Solutions
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------
Please fill in the
blanks and show all work
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