Asked by Asive Sibeko on May 01, 2024
Verified
Ed Lawrence has $100,000 invested. Of that, $30,000 is invested in Tim Hortons stock, $25,000 is invested in T-bills, and the remainder is invested in corporate bonds. Which of the following is NOT correct regarding his portfolio weights? (All values are current market values.)
A) Ed has 30% of his portfolio invested in stocks.
B) Ed has 45% of his portfolio invested in corporate bonds.
C) Ed has 70% of his portfolio invested in assets other than stocks.
D) Ed has 70% of his portfolio invested in risk-free assets.
E) If Ed sells his corporate bonds and buys Suncor stock with the proceeds, he will end up with 75% of his portfolio invested in stocks.
Portfolio Weights
Percentage of a portfolio’s total value in a particular asset.
Market Values
The listed market price for an asset or service available for immediate transaction.
Corporate Bonds
Debt securities issued by corporations to fund their operations, capital improvements, or expansions, offering periodic interest payments and the return of principal at maturity.
- Explain the concept of portfolio beta and its role in achieving diversification, including how to compute it.
Verified Answer
LT
Lamar TravisMay 08, 2024
Final Answer :
D
Explanation :
The total investment is $100,000, with $30,000 in stocks and $25,000 in T-bills. The remainder, $45,000, is in corporate bonds. Therefore, 30% is in stocks, 25% in T-bills, and 45% in corporate bonds. D is incorrect because only the $25,000 in T-bills can be considered risk-free, making up 25% of the portfolio, not 70%.
Learning Objectives
- Explain the concept of portfolio beta and its role in achieving diversification, including how to compute it.