You own a portfolio equally invested in a risk-free asset and two stocks. If one

Question

You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.72, and the total portfolio is exactly as risky as the market, what must the beta be for the other stock in your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Beta = ?

You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.72, and the total portfolio is exactly as risky as the market, what must the beta be for the other stock in your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Beta = ?

Explanation / Answer

Beta of stock 1 = 1.72

Beta of risk free asset = 0

Beta of stock 2= X

Beta of market = 1

So the equation is

1.72 *(1/3) + 0*(1/3) + X*(1/3) =1

0.5733 +0 + X/3 = 1

x/3 = 0.4267

x = 1.28

Beta of the other stock = 1.28

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