You Want Your Portfolio Beta to Be 1

question 315

Multiple Choice

You want your portfolio beta to be 1.20. Currently, your portfolio consists of $100 invested in stock A with a beta of 1.4 and $300 in stock B with a beta of .6. You have another $400 to invest and want
To divide it between an asset with a beta of 1.6 and a risk-free asset. How much should you invest in
The risk-free asset?

• A) $0
• B) $140
• C) $200
• D) $320
• E) $400

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Definitions:

Gross Margin Ratio

A measure of a company's financial health, calculated as gross profit divided by net sales, showing the percentage of sales revenue that exceeds the cost of goods sold.

Perpetual Inventory System

An inventory management method that records the sale or purchase of inventory immediately through electronic tracking.

Gross Method

An accounting approach for recording purchases at the gross invoice amount before any trade discounts are taken.

Merchandising Transactions

Business activities related to the buying and selling of merchandise, which may involve inventory purchases, sales transactions, and the return of goods.