You want to create a portfolio equally as risky as the market, and you have $2,2

ID: 2645616 • Letter: Y

Question

You want to create a portfolio equally as risky as the market, and you have $2,200,000 to invest. Given this information, fill in the rest of the following table: (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations.)

Need: Stock C Investment, Risk Free asset Investment and Beta

Explanation / Answer

In order to get market equivalent risky portfolio, weighted beta of portfolio must be 1. Acccordingly:

= 506000/2200000*1 + 770000/2200000*1.80 + X*2 = 1

= 0.86 + 2X = 1

X = .07

Amount to be invested in Stock C = 2200000 * .07 = 154000

Amount to be invested in risk free securities = 2200000 - 506000 - 770000 - 154000 = 770000

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You want to create a portfolio equally as risky as the market, and you have $2,2

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