A share market comprises 5 000 shares of company A and 2 000 shares of company B. Assume the share prices for companies A and B are $20 and $35, respectively. If you have $15 000 to invest and you want to hold the market portfolio, how much of your money will you invest in company A?

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Quizplus · Accepted Answer

To hold the market portfolio, you need to invest in the companies in proportion to their market capitalizations. Company A's market cap is 5,000 shares * $20 = $100,000, and Company B's market cap is 2,000 shares * $35 = $70,000. The total market cap is $100,000 + $70,000 = $170,000. The proportion of the market cap for Company A is $100,000 / $170,000 = 58.82%. Therefore, you should invest 58.82% of your $15,000 in Company A, which is $15,000 * 58.82% = $8,823.53.

A Share Market Comprises 5 000 Shares of Company a and 2