You Would Like to Combine a Risky Stock with a Beta

question 76

Multiple Choice

You would like to combine a risky stock with a beta of 1.87 with U.S.Treasury bills in such a way that the risk level of the portfolio is equivalent to the risk level of the overall market.What percentage of the portfolio should be invested in the risky asset?

• A)46.29%
• B)53.48%
• C)50.55%
• D)47.45%
• E)57.08%

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Definitions:

Correlation Coefficient

An index assessing the power of association between a pair of variables.

Dependent Variable

A dependent variable is the outcome or response that researchers are interested in explaining or predicting, changing in response to manipulation of the independent variable.

Independent Variable

The variable in an experimental or observational study that is manipulated or categorized to observe its effect on the dependent variable.

Covariance Value

A measure indicating the extent to which two random variables change together, where a positive value implies direct correlation, and a negative value an inverse correlation.