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Nancy is trying to create a portfolio of two stocks that would move with the overall...

Nancy is trying to create a portfolio of two stocks that would move with the overall market. The four stocks and their correponding Betas are as follows:

Apple: Beta: 1.17

AT&T: .67

Salesforce: 1.35

Con Edison: .24

Of the two stocks portfolios listed below, which choice portfolio would move closely with the overall market?

Portfolio of Salesforce & AT&T

Portfolio of AT&T and Con Edison

Portfolio of Salesforce & Con Edison

Portfolio of Salesforce and Apple

Solutions

Expert Solution

a. Beta of 4 stocks are given and a portfolio of 2 stocks to be created which would move closely with the overall market.

b. We will have a possible combination of 6 portfolios as given below.

c. Since the investment proportion of each stock in portfolio is not provided, we assume equal weightage (50% and 50%)

d. To move closely with the overall market, beta of the portfolio have to be 1 or closer to 1.

e. The beta of the portfolio is the weighted average of the individual stock betas.

The beta of Salesforce & AT&T is 1.01 which is the closest to 1. Thus this portfolio will move closely with the overall market.

Thus the answer is Portfolio of Salesforce & AT&T

jeff jeffy answered 3 years ago
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