You want your portfolio beta to be 1

Portfolio beta = 1.30

Stock A - Invested = $ 200 and beta = 1.6

Stock B - Invested = $ 400 and beta = 0.8

ABC beta = 1.9 and we know that risk free asset's beta = 0

Further remaining amount to invest is $ 600 and total investment will be $ 200 + $400 +$ 600 = $ 1,200

Lets assume that amount invested in ABC stock is $ "X" and amount in risk free asset = "$600 - X"

We know that ;

Portfolio beta = (Beta stock A * Weight A) + ( Beta stock B * weight B) + (Beta ABC * weight ABC)

Portfolio beta = ( 1.6 * 200/1200) + ( 0.8 * 400/1200) + ( 1.9 * X /1200)

1.30 = ( 1.6 * 200/1200) + ( 0.8 * 400/1200) + ( 1.9 * X /1200)

X = 480

Hence, amount to be invested in ABC stock is $ 480 and to risk free assets $ 600 - $ 484 = 116

• $480