A $5,000 portfolio is invested in three stocks and one risk-free asset

The beta of stock C is computed as shown below:

Beta of portfolio = Beta of stock A x weight of stock A + Beta of stock B x weight of stock B + Beta of stock C x weight of stock C + Beta of risk free asset x weight of risk free asset

Weight of Stock C is computed as follows:

= (Total amount of investment - Investment in Stock A - Investment in Stock B) / 2

= ($ 5,000 - $ 900 - $ 1,000) / 2

= $ 3,100 / 2

= $ 1,550

Weight of risk free asset is computed as follows:

= (Total amount of investment - Investment in Stock A - Investment in Stock B) / 2

= ($ 5,000 - $ 900 - $ 1,000) / 2

= $ 3,100 / 2

= $ 1,550

Beta of portfolio will be 1, since the beta of portfolio is equally as risky as the market.

Beta of risk free asset is always zero.

So, the beta of stock C will be as follows:

1 = 0.75 x $ 900 / $ 5,000 + 1.25 x $ 1,000 / $ 5,000 + Beta of stock C x $ 1,550 / $ 5,000 + 0 x $ 1,550 / $ 5,000

1 = 0.135 + 0.25 + Beta of Stock C x 0.31 + 0

0.615 = Beta of Stock C x 0.31

Beta of Stock C = 1.98 Approximately