Creating a Diversified Investment Portfolio

Is it possible to create a portfolio investing in Bay Corporation and City Limited?

Yes, it is possible to create this portfolio investing in Bay Corporation and City Limited.

Investment Allocation:

To create a portfolio with a total amount of $48,000, comprising of Bay Corporation and City Limited, we need to allocate the investments based on their beta values and expected returns. Investment in Bay Corporation: To determine the investment in Bay Corporation, we need to calculate the weight of Bay Corporation in the portfolio. Since the beta of Bay Corporation is 1.19 and the expected return is 11.2%, we use the Capital Asset Pricing Model (CAPM) to calculate the expected return for Bay Corporation as 15.04%. The weight of Bay Corporation in the portfolio is 0.6204, and thus the investment amount in Bay Corporation would be approximately $20,955.02 (rounded to the nearest cent). Investment in City Limited: Similarly, for City Limited with a beta of 1.81 and an expected return of 13.91%, the expected return using CAPM is 19.12%. The weight of City Limited in the portfolio is 0.3796, resulting in an investment amount of approximately $27,044.98 (rounded to the nearest cent). Therefore, the total investment of $48,000 would be split with $20,955.02 invested in Bay Corporation and $27,044.98 invested in City Limited to meet the criteria of a diversified portfolio.
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