You have a $1,000 portfolio which is invested in stocks A and B plus a risk-free asset. $350 is invested in stock A. Stock A has a beta of 1.5 and stock B has a beta of .8. How much needs to be invested in stock B if you want a portfolio beta of .90?
A) $0
B) $351
C) $382
D) $469
E) $650

Question

Quizplus · Accepted Answer

To achieve a portfolio beta of 0.90, calculate the weighted average of the betas: 0.90 = (350/1000)*1.5 + (x/1000)*0.8 + ((1000-350-x)/1000)*0. The equation simplifies to x = 469.

You Have a $1,000 Portfolio Which Is Invested in Stocks