You want to compile a $1,000 portfolio which will be invested in Stocks A and B plus a risk-free asset. Stock A has a beta of 1.2 and Stock B has a beta of .7. If you invest $300 in Stock A and want a portfolio beta of .9, how much should you invest in Stock B?
$700.00
$268.40
300.00
$771.43
$608.15
| $771.43 | ||||
| Beta of risk free asset is 0 | ||||
| Statement showing computations | ||||
| Particulars | Amount Invested | Weight | Beta | Portfolio Beta |
| Stock A | 300.00 | 0.30 | 1.20 | 0.36 |
| Stock B | W | 0.70 | ||
| Risk free Asset | .70-w | - | ||
| 1,000.00 | ||||
| .9 = 1.2*.3 + .70*w | ||||
| .90 = .36 +.70w | ||||
| .54 = .70w | ||||
| .54/.70 =w | ||||
| Weight = .7714 | ||||
| Stock B = 100*.7714 | ||||
| Stock B=771.43 | ||||
| Risk free asset = 700 - 771.43=-71.43 |
You want to compile a $1,000 portfolio which will be invested in Stocks A and B...