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You want to create a portfolio equally as risky as the market, and you have $1,000,000 to invest. Given this information, fill in the rest of the following table: (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)


You want to create a portfolio equally as risky as the market, and you have $1,000,000 to invest. Given this information, fil

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Answer #1
Total Stock A+stock B value = Value of Stock A + Value of Stock B
=165000+350000
=515000
Weight of Stock A = Value of Stock A/Total Stock A+stock B Value
= 165000/515000
=0.3204
Weight of Stock B = Value of Stock B/Total Stock A+stock B Value
= 350000/515000
=0.6796
Beta of Stock A+stock B = Weight of Stock A*Beta of Stock A+Weight of Stock B*Beta of Stock B
Beta of Stock A+stock B = 0.8*0.3204+1.09*0.6796
Beta of Stock A+stock B = 0.9971
Total Total portfolio value = Value of Stock A+Stock B + Value of Remaining port
=515000+485000
=1000000
Weight of Stock A+Stock B = Value of Stock A+Stock B/Total Total portfolio Value
= 515000/1000000
=0.515
Weight of Remaining port = Value of Remaining port/Total Total portfolio Value
= 485000/1000000
=0.485
Beta of Total portfolio = Weight of Stock A+Stock B*Beta of Stock A+Stock B+Weight of Remaining port*Beta of Remaining port
1 = 0.9971*0.515+Beta of Remaining port*0.485
Beta of Remaining port = 1.0031
Beta of Remaining port = Weight of Stock C*Beta of Stock C+Weight of T bill*Beta of T bill
1.0031 = 1.27*Weight of Stock C+0*(1-weight of Stock C)
Weight of Stock C = 0.789843
Weight of T bill =1-weight of Stock C=1-0.7898=0.210157

Amount to invest in stock C = weight of stock C in remaining port*remaining port amount = 0.789843*485000

=

383073.86

Amount to invest in T bill = weight of T bill in remaining port*remaining port amount =

0.210157*485000

=101926.15

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