You own a portfolio that is equally invested in three assets: 1)the risk-free asset; 2)Stock 1; and 3)Stock 2.Stock 1 has a beta of 1.9 and the portfolio has the same risk as the market portfolio.
What is the beta of Stock 2 in the portfolio?
A) 1.0
B) 1.1
C) 1.2
D) 1.3
E) 1.4

Question

Quizplus · Accepted Answer

The market has a beta of 1, so we know the total portfolio also has a beta of 1. The risk-free asset has a beta of 0. β_p = w₁β₁ + . . . + w_nβ_n 1.0 = (0.33 × 1.9) + (0.33 × β₂) + (0.33 × 0) 1.0 = 0.627 + (0.33 × β₂) 0.373 = (0.33 × β₂) Β₂ = 1.1

You Own a Portfolio That Is Equally Invested in Three