Question

there are only 2 risky assets in the market. stock a with 100 shares outstanding and the price per share of $120, and stock b with 150 shares outstanding and the price per share of $80. according to the capm, if an investor invests $1000 in the optimal risky portfolio, how much does she invest in each of the 2 risky assets?

Answer 1

If the values of stock a and stock b is given as below, the investment in both the risky assets be as below:

• stock a with 100 shares outstanding and a price per share of $120
• stock b with 150 shares outstanding and a price per share of $80

So,  if an investor invests $1000 in the optimal risky portfolio one should invest the following amount in each of the 2 risky assets=

100*120 which is $12000 should be the total value of the stock a

80*150 which is $12000 should be the total value of the stock b

Now, since both are of equal value the investor can invest half in each stock which $500 in both stock a and stock b.

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