You own two mutual funds.Fund A has an expected return of 12% and a beta of 0.8.Fund B has an expected return of 18% and a beta of 1.4.If your portfolio beta is the same as the market portfolio,what proportion of your portfolio is invested in fund A?
A) 1/4
B) 1/3
C) 1/2
D) 2/3
E) 3/4

Question

Quizplus · Accepted Answer

Let w be the weight of fund A: β_p = w β₁ + (1 - w) β₂ 1.0 = w(0.8) + (1 - w)(1.4) 1.0 = 0.8w + 1.4 - 1.4w -0.4 = -0.6w w = 2/3

You Own Two Mutual Funds