You desire a portfolio beta of 1.1.Currently,your portfolio consists of $100 invested in Stock A with a beta of 1.4 and $300 in Stock B with a beta of .6.You have another $400 to invest and want to divide it between Stock C with a beta of 1.6 and a risk-free asset.How much should you invest in the risk-free asset to obtain your desired beta?
A)$50
B)$100
C)$125
D)$350
E)$300

Question

Quizplus · Accepted Answer

The correct answer is A because the portfolio beta is calculated as the weighted average of the individual stock betas, with the weights being the proportions of the portfolio invested in each stock. In this case, the portfolio beta is:(100/500) * 1.4 + (300/500) * 0.6 + (x/500) * 1.6 = 1.1Solving for x, we get x = $50.

You Desire a Portfolio Beta of 1