You want to create a portfolio equally as risky as the market, and you have $2,700,000 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 | $ 459,000 | 1.00 | ||
Stock B | $ 783,000 | 1.40 | ||
Stock C | $ | 1.60 | ||
Risk-free asset | $ | |||
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portfolio equally as risky as the market means the portfolio should have Beta of 1.
Beta of risk free asset=0 as there is no relation between market return and risk free asset
assume Investment in stock C=C
then investment in risk free asset=2700000-459000-783000-C=1458000-C
Portfolio beta=1
(459000/2700000)*1.00+(783000/2700000)*1.40+(C/2700000)*1.60+((1458000-C)/2700000)*0=1
0.576+(C/2700000)*1.60=1
C=((1-0.576)/1.60)*2700000
=715500 is the investment in Stock C
risk free asset investment=2700000-459000-783000-715500=742500
The above is the answer,,
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