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Another analyst sees the same mispricing as in the problem above, but this person is an individual investor seeking to optimize a portfolio rather...
Another analyst sees the same mispricing as in the problem above, but this person is an individual investor seeking to optimize a portfolio rather than to engage in arbitrage. The analyst knows that in addition to the CAPM statistics (provided in the prior problem), calculating the weight the stock should have in the portfolio also requires forecasting its standard deviation and the market’s (which at present is the investor’s only holding). The analyst estimates that 30% and 20%, respectively, are appropriate. Given these forecasts, the optimal weight of the low beta stock in the new risky portfolio should be ______%
