Creating a Portfolio Based on Betas
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I am trying to understand what formula to use.
I want to create a portfolio equally risky as the market, and I have $1,000,000 to invest. So Given the info below, I need to fill the table below;
Asset Investment Beta
Stock A $200,000 .80
Stock B $250,000 1.30
Stock C 1.50
Risk-free asset
I know that the Investment for stock C = $343,333 and the Risk Free asset is $206,667.
I am trying to figure how to solve this problem.
Hope this helps thanks.
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Solution Summary
I want to create a portfolio equally risky as the market, and I have $1,000,000 to invest. So given the info below, I need to fill the table below;
Asset Investment Beta
Stock A $200,000 .80
Stock B $250,000 1.30
Stock C 1.50
Risk-free asset
Solution Preview
The market beta is, by definition, 1.0. The risk-free asset has a beta of 0.00 by definition. To find the weighted-average beta of a portfolio, we multiply the beta of each investment by the amount of that investment. Thus,
(Total portfolio*portfolio beta)=(investment in Stock A*beta of ...
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