Question

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: (Do not round intermediate calculations. Round your answers to the nearest whole number, e.g., 32.)

Asset	Investment		Beta
Stock A	$ 195,000		.90
Stock B	$ 340,000		1.15
Stock C	$		1.29
Risk-free asset	$

Answer 1

Let investment in Stock C=$x

Hence investment in risk free asset=1,000,000-(195000+340,000+x)

=(465000-x)

Portfolio beta=Respective betas*Respective weights

1=(195000/1,000,000*0.90)+(340,000/1,000,000*1.15)+(x/1,000,000*1.29)+(465000-x)/1,000,000*0[Beta of risk free assets=0]
1=0.5665+(x/1,000,000*1.29)

x=(1-0.5665)*1,000,000/1.29

=$336,047(Approx)=investment in Stock C

Hence investment in risk free asset=(465000-336047)=$128,953(Approx).

Beta of risk free asset=0.