Question: Mr Malone wants to change the overall risk of his
Mr. Malone wants to change the overall risk of his portfolio. Currently his portfolio is a combination of risky assets with a beta of 1.25 and an expected return of 14%. Mr. Malone will add a risk-free asset (U.S. Treasury bill) to his portfolio. If he wants a beta of 1.0, what percent of his wealth should be in the risky portfolio and what percent should be in the risk-free asset? If he wants a beta of 0.75? If he wants a beta of 0.50? If he wants a beta of 0.25? Is there a pattern here?
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