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Unformatted text preview: Fall 2008 Engineering 120 Industrial Engineering & Operations Research November 17, 2008 Page 1 of 1 Homework #9 1. (15 points) You want to create a portfolio equally as risky as the market, and you have $1,000,000 to invest. Given this information, fill in the rest of the following table: Asset Investment Beta Stock A $175,000 .80 Stock B $300,000 1.30 Stock C 1.50 Risk-free asset 2. (20 points) Your goal is to create a portfolio that has only 70% of the risk of the overall market. X has a beta of 1.5 and Y has a beta of 2.0. Expected return of Y is 10 percent more than the expected return of X. Risk-free rate is 5 percent. Assume that the CAPM holds. What is the expected return of the portfolio? 3. (25 points) True/False? Explain: a. Suppose that a portfolio satisfies the CML equation. Then, it has no nonsystematic risk. b. Beta of a portfolio on the CML must be equal to 1. c. Suppose that a portfolio is a combination of the risk-free asset and the market portfolio where the weights on both are positive. Then, its beta satisfies: 0weights on both are positive....
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- Fall '08
- Operations Research