Question

2.) 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:

Asset	Investment	Beta
Stock A	$185,000	.80
Stock B	$320,000	1.13
Stock C	?	1.29
Risk-free asset	?

Answer 1

Beta of market is 1. If the portfolio is as risky as market its beta would be 1

Let amount invested in Stock C be x

Amount invested in Risk free asset would be = $1000000 - $185000 - $320000 - x = $495000 - x

Beta of risk free asset is zero

Beta would be:

1 = [($185000*.80) + ($320000*1.13) + (1.29x) + ($4950000x)*0]/1000000

1000000 = 148000 + $361600 + 1.29x

x = $143400/1.29

= $111162.79

Amount invested in Stock C = $111162.79

Amount invested in risk free asset = $495000 - $111162.79 = $383837.21