You just won a $200,000 lottery and are meeting with your financial advisor to discuss how to best invest this money.
You are considering investing in two companies, but are not sure how to proportion the investment to achieve an expected return of 14.25%.
One stock (Tubbase Inc.) has an annual return rate of 12.65% and a beta of 1.31 and the second stock (Black Hat Market Inc.) has an annual return rate of 9.20%and a beta of .91. Assume the risk free rate is 0.0%.
What proportion of the lottery winnings should be invested in Black Hat Market Inc. company? What is the portfolio beta?