Question: a . You have $ 1 0 0 , 0 0 0 to invest in a portfolio containing Stock x , Stock Y , and

a. You have $100,000 to invest in a portfolio containing Stock x, Stock Y, and a risk-free asset. You must invest all of your money. Your goal is to create a portfolio that has an expected return of 13 percent and that has only 70 percent of the risk of the overall market. If x has an expected return of 35 percent and a beta of 1.6,Y has an expected return of 20 percent and a beta of 1.3, and the risk-free rate is 7 percent, how much money will you invest in Stock Y?
b. How do you explain your answer? (Hint: Do the results indicate taking a short position in one of the Stocks?)
 a. You have $100,000 to invest in a portfolio containing Stock

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!