You own a $210,000 portfolio that is invested in stock A andB. The portfolio beta is equal to the market beta. Stock A has an expected return of 18.7 percent and has a beta of 1.42. Stock B has a beta of 0.88. What is the value of your investment in stock A?
A) $38,600
B) $42,333
C) $44,499
D) $46,666
E) $47,200

Question

Quizplus · Accepted Answer

The portfolio beta is equal to the market beta, which is 1. Therefore, the weighted average beta of the portfolio is 1. Using the formula: (Investment in A / Total Portfolio) * Beta of A + (Investment in B / Total Portfolio) * Beta of B = 1, solve for the investment in A. The calculation shows that the investment in A is $46,666.

You Own a $210,000 Portfolio That Is Invested in Stock