Question
You would like to create a portfolio that is equally invested in a risk-free asset and two stocks. The one stock has a beta of .80. What does the beta of the second stock have to be if you want the portfolio risk to equal that of the overall market?
Answers
A risk-free asset has a beta of 0. The average market beta is 1.0
0.8 + x = 3.0
x = 3 - 0.8
x = 2.2
0.8 + x = 3.0
x = 3 - 0.8
x = 2.2
Related Questions
As an investor you are faced with two choices investing in a risky fund which has a return of 12% an...
I am having the most trouble with this. Any help or direction would be greatly appreciated.
1) Y...
How does an investor earn more than the return generated by the tangency portfolio and still stay on...
If an investor wants a portfolio that maximizes return while accepting a specific level of risk they...