Expert advice on Determining Portfolio Weights Please!!!! Thanks so much!!! 6. D

Question

Expert advice on Determining Portfolio Weights Please!!!!

Thanks so much!!!

6. Determining portfolio weights Aa Aa Karen's portfolio, which has a beta of 1.06, consists of three mutual funds: an international fund, a utility fund, and a technology fund. The international fund ha$ a beta of 1.5 and makes up 20% of the portfolio. The utility fund has a beta of 0.5, and the technology fund has a beta of 1.3. If the portfolio's beta equals 1.06, how much of Karen's portfolio is invested in the technology fund? O 25% O 70% o 40% O 45% O 65%

Explanation / Answer

let w be weight of utility fund and (1-w - 0.2) is the weight of technology fund

=>

portfolio beta = 1.06

=>

1.5 * 0.2 + 0.5 * w + 1.3 * (1-w-0.2) = 1.06

=>

w = 0.35

=>

proportion invested in technology fund = 1 -0.2 - 0.35 = 0.45 = 45%

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