Important information about Analyzing a portfolio
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Analyzing a Portfolio
You have $100,000 to invest in a portfolio containing Stock X, Stock Y and a risk-free asset. You must invest all of your money. Your goal is to create a portfolio that has an expected return of 13.5% and that has only 53% of the risk of the overall market. If X has an expected return of 31% and a Beta of 1.8, Y has an expected return of 20% and a Beta of 1.3, and the risk-free rate is 7%, how much money will you invest in Stock X?
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Solution Summary
The solution explains how to estimate the amount to be allocated to various assets in the portfolio given the expected return and risk of the portfolio.
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The question implies that the portfolio return should be 13.5% and the portfolio beta should be 0.53 (since it has 53% of the risk of market and market beta is 1). Let wx be the weight of X and wy be the ...
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