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Efficient or optimal portfolio using beta as a selection measure

Once you become even more finance savvy, over time you will be more comfortable randomly choosing stock on your own or by using a scientific approach. Can you as an individual investor choosing your own stock create an optimal portfolio of 99 stock (can be other securities besides stock) by selecting 33 stocks with beta equal to 1, 33 stocks with beta equal to 0.5 and 33 stock with beta equal to 2?

Which do you think would be more efficient or optimal even without knowing the rate of return, and why?

1) the portfolio above
2) a portfolio with 33 common stock, 33 preferred stock and 33 Treasury Bonds
3) a portfolio with 33 common stock, 33 preferred stock and 33 Muni Bonds
4) a portfolio with 33 common stock, 33 foreign currencies and 33 stock options

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ANSWERS

Without knowing the rate of return, I would say that the more efficient or optimal portfolio is the one that is comprised of a portfolio with 33 common stock, 33 preferred stock and 33 Muni Bonds. The efficiency of a portfolio is directly affected by the ...

Solution Summary

The solution examines the efficient or optimal portfolio using beta as a selection measure.

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