A portfolio worth $5,500 is invested in Stocks A and B plus a risk-free asset.A total of $2,500 is invested in Stock A with a beta of 1.27.Stock B has a beta of 0.89.How much needs to be invested in Stock B if the goal is to create a portfolio that will mimic the entire market?
A)−$894.20
B)$2,266.67
C)$1,482.08
D)$2,612.36
E)$3,408.15

Question

Quizplus · Accepted Answer

β_Market = 1 β_Portfolio = 1 = 1.27($2,500 / $5,500)+ 0.89(x / $5,500)+ 0[($5,500 − 2,500 − x)/ $5,500] x = $2,612.36

A Portfolio Worth $5,500 Is Invested in Stocks a and B