Final answer:
To find the dollar amount of your investment in Stock D, you can use the concept of beta weighting. The formula to calculate the beta of a portfolio is (Beta of Stock D * Value of Investment in Stock D + Beta of Stock E * Value of Investment in Stock E) / Total Value of Portfolio. Set up an equation using the given information and solve for the value of x to find the dollar amount of your investment in Stock D.
Step-by-step explanation:
To find the dollar amount of your investment in Stock D, you can use the concept of beta weighting. Beta is a measure of a stock's volatility about the market. The formula to calculate the beta of a portfolio is: Beta of Portfolio = (Beta of Stock D × Value of Investment in Stock D + Beta of Stock E × Value of Investment in Stock E) / Total Value of Portfolio
In this case, the beta of your portfolio is equal to the market beta. You know the total value of your portfolio ($280,000) and the betas of Stock D (.73) and Stock E (1.52). Let's assume you have invested x dollars in Stock D. From the given information, we can set up the equation: (.73 × x + 1.52 × (280,000 - x)) / 280,000 = 1
Solving this equation will give you the value of x, which represents the dollar amount of your investment in Stock D.