The table below shows selected financial data for the Turtle Income fund,the Hare Growth fund,the market portfolio and the risk free asset.If you wanted to build a portfolio out of T-Bills and the market portfolio to mimic the performance of the Turtle Income Fund,what proportion would you invest in the market portfolio?

A) 37.1%
B) 50.0%
C) 71.4%
D) 105.7%
E) 140.0%

Question

The table below shows selected financial data for the Turtle Income fund,the Hare Growth fund,the market portfolio and the risk free asset.If you wanted to build a portfolio out of T-Bills and the market portfolio to mimic the performance of the Turtle Income Fund,what proportion would you invest in the market portfolio?
The table below shows selected financial data for the Turtle Income fund,the Hare Growth fund,the market portfolio and the risk free asset.If you wanted to build a portfolio out of T-Bills and the market portfolio to mimic the performance of the Turtle Income Fund,what proportion would you invest in the market portfolio? A) 37.1% B) 50.0% C) 71.4% D) 105.7% E) 140.0%

A) 37.1% 
B) 50.0% 
C) 71.4% 
D) 105.7% 
E) 140.0%

Quizplus · Accepted Answer

The quickest way to find the replicating portfolio for Turtle is to look at Turtle's Beta Turtle's Beta is 0.7143. If we had invested 71.4% of our wealth in the market portfolio and the remainder in T-Bills we would have earned the same return and Beta as Turtle. To double check: The return of the portfolio is the weighted average of the returns of each asset E(k_p) = (0.7143 × 0.12) + (0.2857 × 0.05) E(k_p) = 0.085716 + 0.014285 = 0.10 The beta of the portfolio: β_p = w₁β₁+ . . . + w_nβ_n β_p = (0.7143 × 1.0) + (0.286 × 0) = 0.7143

The Table Below Shows Selected Financial Data for the Turtle