A stock market comprises 4600 shares of stock A and 1600 shares of stock B. Assume the share prices for stocks A and B are $15 and $30, respectively. If you have $15,000 to invest and you want to hold the market portfolio, how much of your money will you invest in Stock A?
A market portfolio is a hypothetical portfolio that has a beta of one, in the capital asset pricing model. Such a portfolio will have no idiosyncratic risks and only systematic risks.
Answer and Explanation: 1
The answer is B).
The total market value is:
- 4600 * 15 + 1600 * 30 = 117000
The weight of stock A in the market portfolio is:
- 4600 * 15 / 117000 =...
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fromChapter 12 / Lesson 3
Systematic risk is the concept that there are risks that diversification cannot protect against, beta is a numeric expression of an investment's risk, and portfolio beta is the weighted average of all the betas in a portfolio. Explore the relationships between these concepts and learn more about how they apply to portfolios and investments.