Risk Free Asset

[b4688]

You would like to create a portfolio that is equally invested in a risk-free asset and two stocks. The one stock has a beta of .80. What does the beta of the second stock have to be if you want the portfolio risk to equal that of the overall market?



~College Fiance. Essentials of corporate fiance 0073405132

 

[b4688]

A risk free asset has a beta of 0. The average market beta is 1.0
0.8 +x=3.0
X=3-0.8
X=2.2

Does this look right?

 

[Denis]

A risk free asset has a beta of 0. The average market beta is 1.0
0.8 +x=3.0
X=3-0.8
X=2.2
Does this look right?

No.

 

[b4688]

?Ignorance is bliss