Katy is a private wealth management consultant for the Webster Family Trust, which is valued at $800M. The family patriarch has instructed her to keep the overall trust Beta at 1.20. The trust currently has $100M invested in Apple Computer (stock A) which has a beta of 1.4 and $300M invested in Berkshire Hathaway (stock B) with a beta of 0.6. Katy needs to invest the remaining $400M and wants to divide the money between an asset with a beta of 1.6 and risk free asset. How much should Katy invest in the risk free asset?

Answer rating: 100% (QA)

Target beta 12 is nothing but weighted average beta of all the stocks in the portfol... View the full answer