Q5.6 Use a published source to select four shares with betas ranging from about 0.50 to 1.50.

Question:

Record the current market prices of each of these shares. Assume you wish to create a portfolio that combines all four shares in such a way that the resulting portfolio beta is about 1.10.

a. Through trial and error, use all four shares to create a portfolio with the target beta of 1.10.

b. If you have $100 000 to invest in this portfolio, on the basis of the weightings determined in part

a, what dollar amounts would you invest in each share?

c. Approximately how many shares of each would you buy, given the dollar amounts calculated in part b?

d. Repeat parts

a, b and c with a different set of weightings that still result in a portfolio beta of 1.10. Can only one unique portfolio with a given beta be created from a given set of shares?

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