Question 4: You have $1,000,000 to invest in a portfolio which will have the same risk as the market portfolio. Keeping this in mind, complete the following table: Asset Table 3 Investment Beta Stock A $200,000 0.8 Stock B $100,000 1.3 Stock C 1.5 Risk free asset Total investment $1,000,000 Hint: Start by computing the weight for stock C Question 3: There are two portfolio choices. Portfolio A comprises of stocks from following companies: Clothing materials, beauty products, footwear and handbags. Portfolio B consists of stocks from following business: crude oil, information technology, food products and electircal goods. From a diversification perspective, which portfolio will be a better investment? Explain your reasoning in no more than 75 words.

Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter12: Fainancial Statement Analysis
Section: Chapter Questions
Problem 85PSA
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Question 4:
You have $1,000,000 to invest in a portfolio which will have the same
risk as the market portfolio. Keeping this in mind, complete the
following table:
Asset
Table 3
Investment Beta
Stock A $200,000
0.8
Stock B $100,000
1.3
Stock C
1.5
Risk free asset
Total investment $1,000,000
Hint: Start by computing the weight for stock C
Transcribed Image Text:Question 4: You have $1,000,000 to invest in a portfolio which will have the same risk as the market portfolio. Keeping this in mind, complete the following table: Asset Table 3 Investment Beta Stock A $200,000 0.8 Stock B $100,000 1.3 Stock C 1.5 Risk free asset Total investment $1,000,000 Hint: Start by computing the weight for stock C
Question 3:
There are two portfolio choices.
Portfolio A comprises of stocks from following companies: Clothing
materials, beauty products, footwear and handbags.
Portfolio B consists of stocks from following business: crude oil,
information technology, food products and electircal goods.
From a diversification perspective, which portfolio will be a better
investment? Explain your reasoning in no more than 75 words.
Transcribed Image Text:Question 3: There are two portfolio choices. Portfolio A comprises of stocks from following companies: Clothing materials, beauty products, footwear and handbags. Portfolio B consists of stocks from following business: crude oil, information technology, food products and electircal goods. From a diversification perspective, which portfolio will be a better investment? Explain your reasoning in no more than 75 words.
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