Suppose your 401(k) plan offers two investment options
Question # 00629403
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Updated on: 12/20/2017 11:33 AM Due on: 12/20/2017
Suppose your 401(k) plan offers two investment options: a fund that invests in the total stock market and a fund that invests in Treasury Bills. In your 401(k) plan, you are not allowed to borrow or short a fund (i.e., you can only take long positions in these two funds). Suppose that your risk aversion is such that you wish to pick a portfolio combination of the total stock market fund and Treasury Bills that comes closest to having the same systematic risk as Fund 1 (based on a 1.35 beta).
In order to come closest to achieving your desired level of systematic risk, whatpercentagein your 401(k) plan would you investin the total stock market fund?
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Solution: Suppose your 401(k) plan offers two investment options