You want your portfolio beta to be 1.3.Currently,the portfolio consists of $100 invested in stock A with a beta of 1.5 and $300 in stock B with a beta of .8.You have another $400 to invest and want to divide it between an asset with a beta of 1.7 and a risk-free asset.How much should you invest in the risk-free asset?
A)$17.65
B)$50.25
C)$200.15
D)$382.35
E)$400.00

Question

Quizplus · Accepted Answer

Portfolio value = $100 + 300 + 400 = $800Beta_Portfolio = 1.3 = ($100/$800 × 1.5)+ ($300/$800 × .8)+ (x/$800 × 1.7)+ (($400 - x)/$800 × 0)x = $382.35Risk-free asset = $400 - 382.35 = $17.65

You Want Your Portfolio Beta to Be 1