Question

You would like to combine a risky stock with a beta of 1.76 with U.S. Treasury bills in such a way that the risk level of the portfolio is equivalent to the risk level of the overall market. What percentage of the portfolio should be invested in the risky stock?

Answer 1

Answer:

The risk of Treasury bills is 0 so we need to buy a proportion of risky assets that its beta equals to 1 which is the market beta

1.76x=1

x=1/1.76

x=0.568

x=56.8%

We need to invest 56 percent of ours portfolio in risky stocks and 44 percent in treasury bills

(0.568*1.76)+*0.44*0)=

Explanation:

Answer 2

What often happens is that many investors want to make big profits but don't want to limit the risk. Whereas in investment the principle applies High-Risk High Return. Investments that offer high returns, certainly have a risk.

Further Explanation

The main point in a risk profile is how committed you are to minimizing risk. Investment or stock trading is not people who dare to take risks, but rather people who are disciplined to limit risk.

The risk profile is closely related to investor characteristics, namely conservative, moderate and aggressive types. Conservative investors tend to avoid risk by looking for something safe. Usually, this type of investor is retirees who only want to get additional income from shares.

Conservative investors usually choose stocks with good fundamentals and save in the long run. Conservative investors don't like fluctuations too much.

While moderate investors are investors who have a higher level of risk tolerance, provided the returns are commensurate. This type of moderate investor has the ability to bear moderate risk, but the expected return is greater than the deposit for example (10 percent -20 percent per year). The aggressive investors tend to actively speculate on buying and selling shares.

Learn More

The risk profile  brainly.com/question/13652189

Conservative/moderate investors  brainly.com/question/13652189

Details

Grade: High School

Subject: Business

Keyword: risk, profile, investors