You own a $50,000 portfolio that is invested in a risk-free security and Stock A. The...
You own a $50,000 portfolio that is invested in a risk-free security and Stock A. The beta of Stock A is 2.20 and the portfolio beta is .95. What is the amount of the investment in Stock A?
Homework Answers
Let investment in A=$x
Hence investment in risk free security=(50,000-x)
portfolio beta=respective beta*Respective weight
0.95=(x/50,000*2.2)+(50,000-x)/50,000*0[Beta of market=1;Beta of risk-free assets=0]
(0.95*50,000)=2.2x
x=47500/2.2
=$21590.91(Approx)=investment in Stock A.
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