Question

g of 1.17 and an expected return of 15.4 percent. A risk-free asset currently earns 4.7 percent. The beta of a portfolio comprised of these two assets is .76. What percentage of the portfolio is invested in the stock

Answer 1

Answer:

65% of the portfolio is invested in stock.

Explanation:

The weight of stock is assumed to be x.  

Then, the Weight of Risk-Free Stock will be 1 - x.

$Beta\ of\ Portfolio\ =\ Weight\ of\ Stock\ \times\ Beta\ of\ Stock\ +\ Weight\ of\ Risk\ free\ asset\ \times\ Beta\ of\ Risk\ Free\ Asset$

Beta of Portfolio =$x\ \times\ 1.17\ +\ [\ ( 1\ -\ x)\ \times\ 0]$

0.76 = 1.17 x

x = 0.76 / 1.17

x =0.64957

x = 64.957%

So, 65% of the portfolio is invested in stock.