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qwelly [4]
3 years ago
13

You would like to combine a risky stock with a beta of 1.5 with U.S. Treasury bills in such a way that the risk level of the por

tfolio is equivalent to the risk level of the overall market. What percentage of the portfolio should be invested in Treasury bills
Business
1 answer:
astra-53 [7]3 years ago
7 0

Answer:

66.67 %

Explanation:

The computation of the percentage of the portfolio should be invested in Treasury bills is shown below:-

Let us assume beta be x

So the equation would be

Percentage of portfolio = x × (Beta of stock) + (1 - x) × (Beta of T - Bills) - 1

= x × (1.5) + (1 - x) × (Beta of T - Bills) - 1

1.5x + (1 - x) × (Beta of T - Bills) - 1

1.5x + 0 = 1

x = 1 ÷ 1.5

= 0.67

or

= 66.67%

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