You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.12 and the total portfolio is equally as risky as the market, what must the beta be for the other stock in your portfolio

Beta for the other stock = 1.88

Explanation:

A  portfolio is said to be as risky as the market where its beta is exactly equal to 1. A beta of greater than 1 implies the portfolio is riskier than the average market, and less risky where the beta is less than 1.

A portfolio that has an equal proportion of three asset would mean a weight of 1/3 for each asset

So we can represent the portfolio beta as follows:

1 = 1/3×(0) + 1/3× (1.12) + 1/3×y

1= 0.37 + 0.33y

0.33y = 0.626

y= 0.626/0.33

y= 1.88

Beta for the other stock = 1.88

answer; /// the above statement is (true);

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