Question

You own a portfolio equally invested in a risk-free asset and two stocks. One of the...

You own a portfolio equally invested in a risk-free asset and two stocks. One of the stocks has a beta of 1.2 and the total portfolio is equally as risky as the market.

What must the beta be for the other stock in your portfolio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

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Answer #1
Information Given:  
Beta of one Stock (Bs1)                      1.20

Beta of Portfolio (Bp)= Beta of Market

 1.00
Weight of One Stock (Ws1) 1/3
Weight of Other Stock (Ws2) 1/3
Weight of Risk Free Asset (Wrf) 1/3
Remember: Beta of Risk Free Asset 0.00
Beta of Other Stock (Bs2) ???
Beta of Portfolio (Bp) = Wrf*Brf + Ws1*Bs1 + Ws2*Bs2
1= 1/3*(0)+1/3*(1.20)+1/3*(Bs2)
1= 0+0.40+1/3*(Bs2)
1-0.40=1/3*(Bs2)
0.60*3= Bs2
Beta of Other Stock = 1.80
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