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4 July, 17:18

You own a portfolio that has a total value of $210,000 and it is invested in Stock D with a beta of. 87 and Stock E with a beta of 1.38. The beta of your portfolio is equal to the market beta. What is the dollar amount of your investment in Stock D

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  1. 4 July, 17:37
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    The dollar amount of the investment in Stock D is (x=$156470.59)

    Explanation:

    Let assume investment in Stock D = $x

    Hence investment in Stock E = (210,000-x)

    Portfolio beta=Respective betas * Respective investment weights

    1 = (x/210,000*0.87) + (210,000-x) / 210,000*1.38[Beta of market=1]

    (1*210,000) = 0.87x + 289800 - 1.38x

    290,000=0.87x+289800-1.38x

    Hence x = (289800-210,000) / (1.38-0.87)

    x = 79,800 / 0.51

    x=156470.5882

    x=$156470.59
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