Connect. rystal Seller INANCE SECTIONS Chapter 11 Homework Quesnon to for Save &

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Connect. rystal Seller INANCE SECTIONS Chapter 11 Homework Quesnon to for Save & E 10. vaue 1000 points Problem 11-27 Analyzing a Portfolio |L0 2 You want to create a portlolio equally as risky as the market, and you have $500,000 to invest Information ahout the possible investments is given below Asset Stock A Stock B Stock C Risk-free asset $134,000 146,000 79 1 24 1.39 How much will ou invest in Stock C? (Do not round intermediate calculations and round your answer to 2 decimal places, e . 32.16. Investment in Stock C$ How much will you invest in the nsk-free asset? (Do not round intermediate calculations and round your answer to 2 decimal places, eg 3216.) Investment in nsk-free asset $ Reterences eBook & Resources Worksheet Problem 11-27 Analyzing a Portfolio LO Learnng Obective: 11-02 Exolain the impacf of

Explanation / Answer

Let investment in X=$x

Hence investment in risk free asset=(500,000-134000-146000-x)

=(220,000-x)

Portfolio beta=respective betas*respective weights

1=(134000/500,000*0.79)+(146000/500,000*1.24)+(x/500,000*1.39)+(220,000-x)/500,000*0[Beta of risk free asset=0]

1=0.21172+0.36208+(x/500,000*1.39)

Hence x=(1-0.21172-0.36208)*500,000/1.39

=$153309.35(Approx)=investment in C

Hence investment in risk free asset=(220,000-153309.35)=$66690.65(Approx).

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