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You own a portfolio equally invested in a risk-free asset and two stocks. One of the stocks has a beta of 1.28 and the total portfolio is equally as risky as the market. What must the beta be for the other stock in your portfolio

Respuesta :

Answer:

1.7202

Explanation:

The computation of the beta for the other stock is shown below:

We assume that the risk free assets has beta of 0

And, the market beta = 1

So the equation would be

Market beta = 1 ÷ 3 × 0 + 1 ÷ 3 × 1.28 + 1 ÷ 3 × beta

1 = 0 + 0.4266 + 1 ÷ 3 beta

1 - 0.4266 = 1 ÷ 3 beta

0.5734 = 1 ÷ 3 beta

So, the beta is

= 0.5734 × 3

= 1.7202

Hence, the beta for the other stock is 1.7202

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