Julia, your aunt, currently is 55 years old; she will retire at the age of 60....

Julia, your aunt, currently is 55 years old; she will retire at the age of 60. Last month, Julia just formed a portfolio with stock A, B, and C. Julia invest her retirement money equally in all 3 assets. Beta of each assets are as follows; bA = 2.21; bB = 1.85; and bC = 1.75 Aunt Julia is a very conservative investor, she can accept minimal risk and she can bear the maximum loss only 5% of her investment, however, if the loss is more than 5%, it is not acceptable. Julia’s investment size is $1,000,000, and this money will be for her retirement. Her investment objective is to form a conservative (low risk) portfolio. She asks your advice of how to form such portfolio to minimize risk. You are about to explain to your aunt, how to reduce the risk of her portfolio by applying CAPM Theory. According to CAPM theory, explain what and how your aunt should invest to achieve her portfolio risk objective?

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jeff jeffy answered 1 year ago

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