A stock has a beta of 1.17 and an expected return of 15.4 percent. A risk-free asset currently earns 4.7 percent. The beta of a portfolio comprised of these two assets is .76. What percentage of the portfolio is invested in the stock?
A) 65 percent
B) 77 percent
C) 74 percent
D) 71 percent
E) 62 percent

Question

Quizplus · Accepted Answer

The portfolio beta is a weighted average of the betas of the assets in the portfolio. Let x be the percentage invested in the stock. Then, 1.17x + 0(1-x) = 0.76. Solving for x gives x = 0.65 or 65%.

A Stock Has a Beta of 1