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balu736 [363]
3 years ago
5

An investor wishes to invest equal amounts in three stocks and to achieve a portfolio beta of 1.2. If stock A has a beta of 0.9

and stock B has has a beta of 1.1. What must be the beta of stock C? a. 1.8 b. 1.2 c. 0.7 d. 1.6
Business
1 answer:
photoshop1234 [79]3 years ago
8 0

Answer:

Beta of Stock C is 1.6

correct option is d. 1.6

Explanation:

given data

portfolio beta = 1.2

stock A beta = 0.9

stock B beta = 1.1

to find out

beta of stock C

solution

we will apply here Portfolio Beta equation that is express as

Portfolio Beta = ( Weight of Stock A × Beta of Stock A ) + ( Weight of Stock B   × Beta of Stock B ) +  ( Weight of Stock C × Beta of Stock C )    ......................1

here weight for each stock = \frac{1}{3}

put here value we will get

1.2 =  ( \frac{1}{3} × 0.9 ) + ( \frac{1}{3} × 1.1 ) +  ( \frac{1}{3} × Beta of Stock C )

solve it we will get

Beta of Stock C = 1.599

so Beta of Stock C is 1.6

and correct option is d. 1.6

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Written down value of the equipment after 4 years = Cost x ( 100% - 1st year MACRS - Second-year MACRS - Third-year MACRS - Fourth-year MACRS ) = $3,500,000 x ( 100% - 20% - 32% - 19.20% - 11.52% ) = $604,800

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