Currently,you own a portfolio comprised of the following three securities.How much of the riskiest security should you sell and replace with risk-free securities if you want your portfolio beta to equal 90 percent of the market beta?
A)$7,023.15
B)$7,811.29
C)$8,666.67
D)$9,613.64
E)$10,318.50

Question

Currently,you own a portfolio comprised of the following three securities.How much of the riskiest security should you sell and replace with risk-free securities if you want your portfolio beta to equal 90 percent of the market beta? 
A)$7,023.15 
B)$7,811.29 
C)$8,666.67 
D)$9,613.64 
E)$10,318.50

Quizplus · Accepted Answer

Portfolio value = $16,400 + $20,500 + $18,200 = $55,100β_P = (0.90)(1.00) = [$16,400/$55,100][1.06] + [($20,500 - x)/55,100)(1.32) + [$18,200/$55,100)(0.98) + ($x/$55,100)(0)x = $9,613.64

Currently,you Own a Portfolio Comprised of the Following Three Securities