Question

You want to design a portfolio has a beta of zero. Stock A has a beta of 1.69 and Stock B’s beta is also greater than 1. You are willing to include both stocks as well as a risk-free security in your portfolio. If your portfolio will have a combined value of $5,000, how much should you invest in Stock B?

a) $2,630

b) $0

c) $2,959

d) $3,008

e) $1,487

Answer 1

As the portfolio beta is "zero", it means that portfolio has no risk. The question itself reveals that total combined portfolio value is invested in risk free security (as risk free security has zero beta).

In the light of above discussion, amount invested in stock B is Zero (Option B)