3) Joey has $90,000 to invest. Of this amount, he reserves $30,000 for risk-free assets, leaving...

Transcribed Image Text:

3) Joey has $90,000 to invest. Of this amount, he reserves $30,000 for risk-free assets, leaving $60,000 to allocate to risky assets. There are only three firms in the economy, each of which issues common stock. The following are the price per share, the total shares outstanding, and the total value of each firm's securities: Firm A B C Price per Share Quantity of Shares Value of Firm $2 20,000 $40,000 $3 $1 20,000 $60,000 100,000 $100,000 Aggregate Value of the Firms $200,000 a) According to the Capital Asset Pricing Model, in what proportions should Joey allocate the $60,000 across the risky securities in the economy if she is to construct the "market portfolio"? b) How much money will Joey allocate to each security? 3) Joey has $90,000 to invest. Of this amount, he reserves $30,000 for risk-free assets, leaving $60,000 to allocate to risky assets. There are only three firms in the economy, each of which issues common stock. The following are the price per share, the total shares outstanding, and the total value of each firm's securities: Firm A B C Price per Share Quantity of Shares Value of Firm $2 20,000 $40,000 $3 $1 20,000 $60,000 100,000 $100,000 Aggregate Value of the Firms $200,000 a) According to the Capital Asset Pricing Model, in what proportions should Joey allocate the $60,000 across the risky securities in the economy if she is to construct the "market portfolio"? b) How much money will Joey allocate to each security?

Answer rating: 100% (QA)

a According to the Capital Asset Pricing Model CAPM the proportion in which Joey should alloca... View the full answer