You want to compile a portfolio valued at $1,000 which will be invested in Stocks A and B plus a risk-free asset.Stock A has a beta of 1.2 and Stock B has a beta of .7.If you invest $300 in Stock A and want a portfolio beta of .9,how much should you invest in Stock B?
A)$700.00
B)$268.40
C)$300.00
D)$771.43
E)$608.15

Question

Quizplus · Accepted Answer

To achieve a portfolio beta of 0.9 with a $300 investment in Stock A (beta = 1.2) and an unknown investment in Stock B (beta = 0.7), we use the formula for the weighted average beta of the portfolio: $0.9 = \frac{300 \times 1.2 + x \times 0.7}{1000}$, where x is the amount invested in Stock B. Solving for x gives us $771.43.

You Want to Compile a Portfolio Valued at $1,000 Which